# Reply Brief — MeadWestvaco Corp. v. Illinois Department of Revenue

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Reply Brief
- **Published:** January 1, 2008
- **Citation:** 553 U.S. 16

## Text

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vol? /2- 2- 07

In The
Supreme Court of the United States

¢

MEADWESTVACO CORPORATION, SUCCESSOR
IN INTEREST TO THE MEAD CORPORATION,

Petitioner,
Vv.

ILLINOIS DEPARTMENT OF REVENUE, DIRECTOR
OF THE ILLINOIS DEPARTMENT OF REVENUE,
AND TREASURER OF THE STATE OF ILLINOIS,

Respondents.

¢

On Writ Of Certiorari To The
Appellate Court Of Illinois

,
4

REPLY BRIEF OF PETITIONER

°

PAUL H. FRANKEL

BETH S. BRINKMANN Counsel of Record
BRIAN R. MATSUI CRAIG B. FIELDS
NicoLe D. DEVERO ROBERTA MOSELEY NERO

MORRISON & FOERSTER LLP MORRISON & FOERSTER LLP
2000 Pennsylvania Ave.,N.W. 1290 Avenue of the Americas
Washington, DC 20006 New York, NY 10104

(202) 887-1544 (212) 468-8000

Counsel for Petitioner

DECEMBER 28, 2007

COCKLE LAW BRIEF PRINTING CO (300) 225-6964
OR CALL COLLECT (402) 342 2331

i

TABLE OF CONTENTS

TABLE OF AUTHORITIES ..................c.sccsssseesseees
REPLY BRIEF OF PETITIONER ........................

I.

Il.

III.

RESPONDENTS DEFENSE OF THE STATE
CourRT’s OPERATIONAL FUNCTION TEST IS
a

A.

B.

Respondents’ Argument Is Contrary To
i ictepitinsinnissiisindddneiacsdsstensstasnis

Respondents Cannot Prevail Based On
The Standard Of Review Because The
State Court Applied The Wrong Legal
Standard For Operational Function.....

Respondents Improperly Conflate The
Operational Function Test And The
Unitary Business Test...........................

RESPONDENTS CHALLENGE TO THE TRIAL
CourT’s UNITARY BUSINESS RULING FAILS....

A.

B.

The Trial Court Correctly Concluded
That There Was No Unitary Business
Relationship Between Mead And Lexis/
ee ascicabshdisintlbethacsthdastbcieccdesdicdecitiedhlushdaiitinceiguin

Respondents Misconstrue The Container
8 ae

RESPONDENTS WAIVED THEIR MERITLESS
ARGUMENT THAT THE RELATIONSHIP BETWEEN
LExiS/NExIS AND ILLINOIS ALLOWS RESPONDENTS
To Tax MEAD’S CAPITAL GAIN..................0000.

13

13

16

il

TABLE OF CONTENTS - Continued
Page

A. Respondents Failed To Preserve This
Argument In The State Appellate
STITT ssscchipinthinsachilcitecnenidteiseeanidiinciginibaibiiniitines 22

B. This Argument Raises Issues That
Could Affect Other States Who Were
Not On Notice Of The Argument From
The Certiorari-Stage Briefing............... 23

C. Reliance On An _Investment’s
Relationship With The Taxing State To
Tax An Investor Cannot Be Squared
With This Court’s Precedents ............... 25

IV. A RULING IN RESPONDENTS’ FAVOR WOULD
UPSET SETTLED EXPECTATIONS AND CREATE
A Risk OF DUPLICATIVE TAXATION................. 29

IIIT sscncccnconsecciansiesssopcensicesdeeniinmuiadereieian 32

ili

TABLE OF AUTHORITIES
Page

CASES
Adams Express Co. v. Ohio State Auditor, 165

is ict acateninhleniatandpininathateilaena 13, 26
Alaska Department of Revenue v. OSG Bulk

Ships, Inc., 961 P.2d 399 (Alaska 1998)........... 11, 30
Allied-Signal, Inc. v. Director, Division of

Taxation, 504 U.S. 768 (1992) .......... ee passim
In re Allied-Signal, Inc. , 645 N.Y.S.2d 895 (N.Y.

App. Div.), appeal dismissed, 675 N.E.2d

PEE TEI chicsincciniatunntinteisetindeeeinéotaseigiietenl 24, 25
ASARCO Ince. v. Idaho State Tax Commission,

eee 3, 12, 14
Bass, Ratcliff & Gretton, Ltd. v. State Tax

Commission, 266 U.S. 271 (1924)............0000000.020. 13
Container Corp. of America v. Franchise Tax

Board, 463 U.S. 159 (1983)........ biveinabeeedibeiniptens passim
Elementary School District 159 v. Schiller, 849

I I tr dcitiieniircecsininicaientenniiatdoninsvcctend 22
Exxon Corp. v. Wisconsin Department of

Revenue, 447 U.S. 207 (1980) ......................0000- 12,19
FW. Woolworth Co. v. Taxation & Revenue

Department, 458 U.S. 354 (1982) ........... 6, 12, 19, 21
Glover v. United States, 531 U.S. 198 (2001)............. 23

Heckler v. Campbell, 461 U.S. 458 (1983) ................. 23

iv

TABLE OF AUTHORITIES — Continued

Page
Hercules Inc. v. Commissioner of Revenue, 575
ESE ES GNI: TUUED sccuvesescnsuvsscninscestvennsnsvensoed 30
Hercules Inc. v. Comptroller of Treasury, 716
ee Se detesinptutninistctestinheasitesaninnaidiertuisied 30
Hoechst Celanese Corp. v. Franchise Tax Board,
22 P.3d 324 (Cal.), cert. denied, 534 U.S. 1040
Sea isiscondciahissiatihinitmeeiianisladdusapinbotintiestitialncaduaitianininns 11, 30
Illinois v. Gates, 462 U.S. 213 (1983)... 24

International Harvester Co. v. Wisconsin
Department of Taxation, 322 U.S. 435 (1944) ....27, 28

Kemppel v. Zaino, 746 N.E.2d 1073 (Ohio 2001)....... 31

Kewanee Industries, Inc. v. New Mexico, 845

SE ETE Mi cnscrtnsnsinctiniphinedepiabsacceneheneetiiecsi 8
Lorillard Tobacco Co. v. Reilly, 533 U.S. 525

TT ic.thiessiianihichiadinsieidetiaibancianatiamabamasiphedtintaeatbinpiiécendvnneds 23
McGoldrick v. Compagnie Generale

Transatlantique, 309 U.S. 430 (1940) ........... 23
Mobil Oil Corp. v. Commissioner of Taxes of

Vermont, 445 U.S. 425 (1980)............ 8, 14, 19, 21, 31
Norton Co. v. Department of Revenue, 340 U.S.

SETI shschassiistianli daieshiadieabaiiaabinanbuntbiiipaiabiegdcsaeasbied 5,14

Pennzoil Co. v. Department of Revenue, 33 P.3d
314 (Or. 2001), cert. denied, 535 U.S. 927
SESE iiichsiidinasiilidabindeaiabadashlepieaiuaselibiademsbuiaindaeibseees 11

Roberts v. Galen of Virginia, Inc., 525 U.S. 249

Vv

TABLE OF AUTHORITIES — Continued

Page
State Railroad Tax Cases v. Kidder, 92 U.S.
Ue wicepicinatintseiicepsontnidiiorsdasadiininndendecmaniatel 12,13
Underwood Typewriter Co. v. Chamberlain, 254
Se ee icntinatuiciniicciecaiigiliaiiaitbdhaedaibidbaidaibiaiehdees 13
Wisconsin v. J.C. Penney Co., 311 U.S. 435
EN ciccutoiscinccensadnevennidbadeineietusiatvitetasainiiaiiiees 27, 28
STATUTES AND RULES
35 Ill. Comp. Stat. Ann. 5/303(a) (West 1994)........... 24
35 Ill. Comp. Stat. Ann. 5/303(b)(3) (West 1994).......24
35 Ill. Comp. Stat. Ann. 5/304(a) (West 1994)........... 24
N.Y. Tax Law § 210(3)(b) (Consol. 2007)...............04. 24
So ets Sie TITY sonichkcdudivcabasasisinishessientinchianpibiiesenibebiabesuasdannital 25
Be ee i Ss MIIIETED ccsevosciscrecensstecnnpsinnibaiendadsiasesintill 22
aa aes ns, Seis Ge aciseiscceiscihccccincidebicccbiimsiiisiaensatedanabiinadanianid 22

MISCELLANEOUS

Jerome R. Hellerstein & Walter Hellerstein,
State Taxation (3d ed. 2007) ...........cccccccccceeeeeeeceeeeee 24

1

REPLY BRIEF OF PETITIONER

Mead paid taxes to Illinois, as a nondomiciliary
corporation, based on the amount of Mead’s income
that was apportioned to its business conducted
in Illinois. That taxation was based on the
well-established proposition that a State can tax a
corporation on its income attributable to business
conducted within the taxing State. But respondents
also required Mead to pay taxes based on a capital
gain that was not apportionable to Illinois.

Respondents urge this Court to expand the reach
of Illinois’s tax authority and allow Illinois to include
in Mead’s apportionable tax base the capital gain
derived by Mead from its out-of-state sale of its
Lexis/Nexis investment. That capital gain, however,
was earned by Mead in the course of activities
unrelated to Mead’s business conducted in Illinois. It
was extraterritorial income not fairly attributed to
the activities of the taxpayer Mead within the State.
It was not income in the regular course of Mead’s
unitary business in Illinois, nor did it serve an
operational function for that business.

This Court’s precedents make clear that
respondents cannot expand the reach of Illinois’s
taxing authority, consistent with the Due Process and
Commerce Clauses, in such circumstances to allow
the State to tax a nondomiciliary investor for a
portion of a capital gain derived from the sale of a
nonunitary investment.

2

I. RESPONDENTS’ DEFENSE Or THE STATE
Court’s OPERATIONAL FUNCTION TeEsT Is
MERITLESS

The sole justification of the state courts below for
allowing Illinois to include in Mead’s apportionable
tax base the capital gain earned by Mead on the
sale of Lexis/Nexis was that Mead’s investment in
Lexis/Nexis somehow served an operational function
for Mead’s paper and office supply business. But
respondents devote only a small fraction of their brief
to an attempt to defend that ruling. They rely on the
single fact that Mead owned Lexis/Nexis and expected a
return on that investment. That rationale does not
meet the constitutional standard for operational
function under Allied-Signal, Inc. v. Director, Division
of Taxation, 504 U.S. 768 (1992).

A. Respondents’ Argument Is Contrary To
Allied-Signal

Respondents are wrong that the state
apportionment method of taxation is constitutional
whenever the taxpayer corporation exerts some
control over a nonunitary asset that produces
out-of-state income or gain. Resp. Br. 40-45.

This Court has held that, unless there is a
unitary business relationship between a taxpayer
corporation and an asset in an out-of-state capital
transaction, a State may tax an apportionment of the

3

gain derived from the asset only if that “capital
transaction serve[s] an operational rather than an
investment function” for the taxpayer’s business
conducted in the State. Allied-Signal, 504 US. at
787. In other words, the operational function test
allows Illinois to tax an apportionment of Mead’s
capital gain on its sale of its Lexis/Nexis electronic
data retrieval investment only if Lexis/Nexis was
somehow used by Mead to serve an operational
function for Mead’s paper and office supply business
conducted in Illinois. In the absence of such an
operational relationship, the constitutionally required
minimum connections between the State and the
taxpayer's gain are not satisfied.

It is not enough that Mead’s ownership
of Lexis/Nexis affected Mead’s balance sheet.
Allied-Signal specifically cautioned that “the mere
fact that an intangible asset was acquired pursuant to
a long-term corporate strategy of acquisitions and
dispositions does not convert an otherwise passive
investment into an integral operational one.” Jbid.
And, a nonunitary asset does not become integral to
the operations of a unitary business merely because
that asset is “‘acquired, managed or disposed of for
purposes relating or contributing to the taxpayer’s
business.’” Jd. at 789 (quoting ASARCO Inc. v. Idaho
State Tax Comm’n, 458 U.S. 307, 326 (1982)).

The Allied-Signal Court emphasized why this is
so: “The business of a corporation requires that it
earn money to continue operations and to provide a
return on its invested capital. Consequently all of its

4

operations, including any investment made, in some
sense can be said to be ‘for purposes related to or
contributing to the [corporation’s! business.’” Jbid. The
Court unequivocally rejected that unlimited concept as
satisfying the constitutional standard. Ibid.

B. Respondents Cannot Prevail Based On
The Standard Of Review Because The
State Court Applied The Wrong Legal
Standard For Operational Function

1. Respondents argue that the judgment below
should be affirmed because the standard of review
that this Court applies requires deference to state
courts. Resp. Br. 40.'

No deference to a _ state court ruling is
appropriate, however, where, as here, the court
applied the wrong legal standard. This Court has
made clear that first its “task must be to determine

' Certain of respondents’ amici also suggest that Mead’s
arguments before this Court shift the burden of proof to Illinois
to prove its tax is constitutional. Br. of California et al. as Amici
Curiae Supporting Respondents 28-30. Mead makes no such
argument. Under the applicable standard, Mead has the burden
of proof to demonstrate that the state tax was unconstitutional.
But, as diseussed in Mead’s opening brief and in this reply, Mead
fully met this burden through undisputed evidence. J.A. 10-13.
It thus is incumbent upon respondents to rebut Mead’s proffer or
have its tax found unconstitutional.

5

whether the state court applied the correct standards
to the case,” and then, only if the state court did so, it
must determine whether the state court’s “judgment
‘was within the realm of permissible judgment.’”
Container Corp. of Am. v. Franchise Tax Bd., 463 U.S.
159, 176 (1983) (quoting Norton Co. v. Department of
Revenue, 340 U.S. 534, 538 (1951)). Thus, absent
application of the correct legal standard by the court
below, this Court does not owe deference to the state
court judgment.

That is so here. The Illinois appellate court's
judgment on operational function does not merit
deference because that court applied the wrong legal
standard. The court employed an ad hoc approach
that cited some connections between the two
businesses and some benefits they shared. The court
rested its operational function ruling simply on
Mead’s ownership of Lexis/Nexis, Mead’s occasional
“involvement with Lexis/Nexis,” and basic indicia of
ownership. Pet. App. 12a-13a.

But the correct legal standard for operational
function under Allied-Signal does not rest on such
facts. Allied-Signal requires that a court look to
whether Lexis/Nexis provided integral support to the
operations of Mead’s paper and office supply business
conducted in Illinois. 504 U.S. at 789. And, as
Mead’s opening brief explains, the facts regarding the
relationship between Mead’s paper and office supply
business and its Lexis/Nexis investment do not
satisfy that test. Pet. Br. 30-41.

6

2. Respondents attempt to distinguish
Allied-Signal on the ground that the taxpayer in that
case “owned only 20.6% of its investee’s stock and had
no way to control the investee.” Resp. Br. 44. But that
fact was not relevant to the operational function
inquiry in Allied-Signal. Rather, the Court cited the
fact to support its conclusion that the taxpayer’s
minority stake in the investment meant that there
was no possibility of “an integrated division of a single
unitary business.” Allied-Signal, 504 U.S. at 788. And
even in the context of a unitary business relationship,
this Court made clear that “potential control is not
sufficient.” Ibid. (citing F W. Woolworth Co. v. Taxation
& Revenue Dep't, 458 U.S. 354, 362 (1982)).’

3. Respondents also contend that the extent of
its taxation of Mead can be justified because, they
claim, “Mead regularly manipulated Lexis/Nexis’s
corporate form” to gain tax benefits. Resp. Br. 41.
That post hoc justification based on corporate form is
wrong for three reasons.

First, respondents’ statement is belied by the
facts to which respondents agreed through stipulation.

* In Woolworth, for example, this Court invalidated an
application of a state tax apportionment scheme even though
three of the four subsidiaries the State sought to tax were 100%
owned by the taxpaying parent. Woolworth, 458 U.S. at 356-357.
Accordingly, not only does petitioner’s 100% ownership have no
relevance to the operational function test, it also is of limited
probative value to the unitary business determination.

7

The stipulated record establishes that, in the
twenty-six years during which Mead owned
Lexis/Nexis, such a change occurred on only three
occasions. J.A. 14. Far from demonstrating any
“regular[]” manipulation of corporate form, those
infrequent occurrences do not indicate’ that
Lexis/Nexis somehow operationally supported Mead’s
paper and office supply business.”

Second, respondents’ argument that the change
in the corporate form of Lexis/Nexis was not “arm’s
length” (Resp. Br. 41) is nonsensical. Mead owned a
100% interest in Lexis/Nexis both before and after
the change in corporate form. Moreover, the record
does not support respondents’ implication that there
was a sale of Lexis/Nexis for $350,000; rather the
record indicates that was the cost of effecting the
corporate change. J.A. 147. The change in corporate
form had no substantive effect on the operations at
Lexis/Nexis vis-a-vis Mead. J.A. 165, 176-177.

Third, this Court has never placed significance
on the corporate form of an asset but, instead, has
focused on the activity of the asset to determine
whether it served an operational function for the

* Respondents’ reliance on this fact also is undermined
by their own insistence, starting in 1988, that Mead and
Lexis/Nexis file consolidated tax returns in Illinois as a unitary
business, which Mead did under protest. J.A. 13. Accordingly,
the 1993 change in corporate form had no effect on Mead’s taxes
in Illinois, because Mead already was filing in that manner at
the insistence of Illinois.

8

entity being taxed. Cf Mobil Oil Corp. v.
Commissioner of Taxes of Vermont, 445 U.S. 425, 440
(1980) (“the underlying activity, not *** the form
of investment *** determinels] the propriety of
apportionability”). Respondents elsewhere concede as
much. See Resp. Br. 43 (“Apportionment has nothing
to do with the form a business organization takes.”).

Respondents’ amici make a somewhat similar
argument, contending that Illinois can apportion to
itself for taxing purposes part of the gain Mead
received from the sale of Lexis/Nexis because the
change in the form of Lexis/Nexis had “the purpose of
setting off against the gains of one part of the
business the losses incurred by another part.” Br. of
California et al. as Amici Curiae Supporting
Respondents 31.‘ Their argument would eviscerate
the operational function test. It would mean, as a
practical matter, that a State would be entitled to
increase its tax on a nondomiciliary corporation
conducting a business in the State to include a
variety of transactions involving the corporation’s
investments located in other States. That would be so
whenever the corporation realized a tax benefit from
its ownership of such out-of-state subsidiaries and

* Neither Illinois nor its amici cite any case to support their
extraordinary proposition that tax benefits that affect only a
multistate corporation’s balance sheet can serve an operational
function. Our research has located only one case addressing that
issue and it did so in the context of state law. See Kewanee
Indus., Inc. v. New Mexico, 845 P.2d 1238 (N.M. 1993).

9

divisions even though those investments were not
otherwise related to the corporation’s unitary business
conducted in the State. The practical and unsettling
effect of such a result is explained in detail by amicus
curiae in support of Mead’s opening brief. See Br.
of The Walt Disney Company as Amicus Curiae
Supporting Petitioner 22-26; see also Pet. Br. 43-50.

C. Respondents Improperly Conflate The
Operational Function Test And The
Unitary Business Test

Respondents and their amici States confuse this
Court’s precedents when they claim that the
operational function test is not distinct from the
unitary business test, and is a mere component of the
latter test. Resp. Br. 43-44; Br. of California et al. as
Amici Curiae Supporting Respondents 14-21.

Significantly, this is a distinction without a
difference, because such mislabeling cannot alter the
fact that the state tax here fails under either
approach. See pages 13-21 infra (unitary business);
Pet. Br. 21-28 (same); see pages 4-9 supra (operational
function); Pet. Br. 28-41 (same).

In any event, respondents’ effort to blur the
distinction between the two tests is misleading
because, irrespective of whether the two tests are
independent of one another or are components of a
larger analysis, they each are distinct in that they
measure in different ways the relationship between
the taxpayer and the asset or investment that the

10

State seeks to tax. The unitary business test
examines whether an asset is an integrated part of
the taxpayer’s business. The operational function test
examines whether an asset that is not integrated
with the taxpayer’s business nonetheless provides
integral operational support to the business.

By conflating the two tests, respondents seek to
satisfy the operational function test based on
evidence that shows no more than some economic
connection between two businesses under common
ownership. That evidence does not, as demonstrated
above, meet the operational function test and,
although it is probative it is not sufficient under the
unitary business test.’ Respondents appear to imply
(Resp. Br. 44) that because, in their view, the
two tests are not mutually exclusive, evidence of
partial satisfaction of both tests can satisfy the
constitutional standard, but that is clearly contrary
to Allied-Signal.

Other than the court below, state courts have
universally recognized that the operational function
test is not satisfied merely because a nonunitary

* We do not suggest that evidence probative of a unitary
business relationship could not also be probative of an
operational function. For example, it might be probative to both
inquiries if the record demonstrated that the two businesses
were in the same line of business. But what respondents ignore
is that such evidence would be probative to both tests for
different reasons, because of the different analyses each test
employs.

11

asset contributes to a taxpayer’s “financial strength
overall,” because to do so “would swallow the
distinction between operational and investment
income.” Alaska Dep't of Revenue v. OSG Bulk Ships,
Inc. , 961 P.2d 399, 411, 414 (Alaska 1998). State court
decisions sustaining state apportionment under
the operational function test share no similarities
to the instant case. Pennzoil Co. v. Department
of Revenue, 33 P.3d 314, 318 (Or. 2001), cert. denied,
535 U.S. 927 (2002) (agreement guaranteeing
strategic petroleum resources for taxpayer petroleum
business constitutes an operational function); Hoechst
Celanese Corp. v. Franchise Tax Bd., 22 P.3d 324, 345
(Cal.), cert. denied, 534 U.S. 1040 (2001) (trust and
pension plan served an operational function because
it was designed “to induce [the taxpayer’s] current
employees to stay and to attract new employees”).
Taxation of the nonunitary asset’s income or gain is
justified in those cases because the income or value
derived therefrom is used in an ongoing, integral
operational capacity by the taxpayer’s unitary
business conducted in the taxing state.

* Allied-Signal and state courts applying the operational
function test also rebut respondents’ claim (Resp. Br. 44) that
the “flow of benefits” from Mead to Lexis/Nexis is relevant
to the test. None of those cases describe a circumstance
in which the operational function test would be satisfied due to
a taxpayer’s support of its nonunitary asset. Thus, it is
respondents’ argument that “finds no support in the caselaw.”
Ibid.

12

Respondents are wrong to challenge the fact that
the operational function test is a narrow exception to
the unitary business principle’s limit on State
taxation of out-of-state income. Resp. Br. 41-42.
The narrow scope of the operational function test is
demonstrated by the very limited circumstances in
which it can sustain a state tax apportionment
scheme. As _ Illinois concedes, this Court in
Allied-Signal proffered just two examples: “interest
on short-term deposits in out-of-state banks, where
the interest is used as working capital”; and an
investment “which ensured a supply of a producer’s
key ingredient.” Resp. Br. 42.’

" It was not until 1992, in Allied-Signal, that the Court
applied, for its first and only time, the operational function test.
The Court in Container Corporation of America v. Franchise Tax
Board had articulated, but had not applied, the operational
function test by citing an example where it might be satisfied
based upon a case arising “in another context.” 463 U.S. 159,
180 n.19 (1983). Other cases from that era challenging state tax
apportionment methods were all resolved based on whether a
unitary business relationship existed. See ASARCO, 458 U.S.
307; Exxon Corp. v. Wisconsin Dep't of Revenue, 447 U.S. 207
(1980); Woolworth, 458 U.S. 354.

By contrast, this Court first set forth the unitary business
test more than one hundred years ago. The Court allowed States
to treat railroads that traversed several jurisdictions “as a unit”
for tax purposes and then to apportion the value of that
multistate “unit” to individual States. State R.R. Tax Cases v.
Kidder, 92 U.S. 575, 608 (1875). This was so because the various
components of the railroad present in each jurisdiction did not,
in isolation, possess significant value. It was only by allowing
States to consider the components in the various jurisdictions in
the aggregate that the true value of the railroad as a whole

(Continued on following page)

13

II. RESPONDENTS’ CHALLENGE To THE TRIAL
Court’s UNITARY BUSINESS RULING FAILS

A. The Trial Court Correctly Concluded
That There Was No Unitary Business
Relationship Between Mead And
Lexis/Nexis

Respondents argue that the trial court erred
when it ruled that there was no unitary relationship
between Mead and Lexis/Nexis. Resp. Br. 34-40.
Although the Illinois appellate court declined to reach
the issue, Pet. App. lla, the trial court thoroughly
examined the question and unequivocally and
correctly resolved it in Mead’s favor, Pet. App. 39a.”

As already noted above, and as _ Illinois
acknowledges (Resp. Br. 40), this Court “will, if

could be discerned and a State could tax a fairly apportioned
part of it. /bid.; Adams Express Co. v. Ohio State Auditor,
165 U.S. 194 (1897); see also Underwood Typewriter Co. v.
Chamberlain, 254 U.S. 113, 120 (1920) (upholding against
constitutional challenge state apportionment method because
“the profits of the corporation were largely earned by a series of
transactions beginning with manufacture in Connecticut and
ending with sales in other states”); Bass, Ratcliff & Gretton, Ltd.
v. State Tax Comm'n, 266 U.S. 271, 282 (1924) (same).

* This issue is not a necessary predicate to resolution of
the question presented because the operational function test is
resolved separately from the unitary business test. Allied-Signal,
504 U.S. at 787. Illinois, however, asks this Court to address the
issue, Resp. Br. 34-40, and noticed the issue in their brief in
opposition, see Br. in Opp. 7, 9 n.3 (discussing test and relying
on its cases), and before the Illinois trial and appellate courts, so
the record allows review of the issue.

14

reasonably possible, defer to the judgment of state
courts in deciding whether a particular set of
activities constitutes a ‘unitary business.’” Container
Corp., 463 U.S. at 175. Thus, if the state trial court
applied the correct legal standard, the Court will
grant deference to its conclusion if that conclusion
“was within the realm of permissible judgment.” Jd.
at 176 (quoting Norton Co., 340 U.S. at 538).

The trial court here applied the correct legal
standard to determine whether a unitary business
relationship existed between Mead and Lexis/Nexis.
Pet. App. 39a. The court examined whether Mead and
Lexis/Nexis were “functionally integrated,” shared
“centralization of management,” or evidenced “significant
economies of scale between the two businesses.” This
substantive standard is identical to the one repeatedly
applied by this Court. Allied-Signal, 504 U.S. at 789
(noting that the “hallmarks” of the unitary business
test are “functional integration, centralization of
management, and economies of scale”); Container
Corp., 462 U.S. at 179; ASARCO, 458 U.S. at 317;
Mobil Oil, 445 U.S. at 438.

The trial court found that none of these three
critical indicia of a unitary business existed in the
instant case. Pet. App. 39a. That determination fell
well “within the realm of permissible judgment”;
indeed, the ruling is overwhelmingly supported by
the record.

The trial court’s ruling that Mead and
Lexis/Nexis “were not functionally integrated” was

15

demonstrated by the fact that the two lines of
business maintained separate departments and
facilities. Pet. App. 35a. This was supported by the facts
to which respondents stipulated that established that
Mead and Lexis/Nexis maintained separate legal
departments, financial staff, accounting departments,
audit departments, credit and collection departments,
human resources departments, marketing departments,
computer systems, bank accounts, and personnel. J.A.
10-13. In light of this overwhelming evidence, the
trial court concluded that Mead’s “involvement for
extraordinary purchases requiring capital investment
and the interest rate advantage gained by Mead
through the nightly sweep of bank accounts is not
sufficient evidence that the two were functionally
integrated.” Pet. App. 35a.

Similarly, based upon those stipulated facts, the
state trial court determined that “Mead and
Lexis/Nexis did not share a centralized management.”
Pet. App. 36a. The trial court ruled that that evidence
was not rebutted by Mead’s approval of certain
“extraordinary purchases” and Mead’s consideration
of Lexis/Nexis in its “strategic planning.” Jbid.

Finally, the trial court held that “[t]here were no
economies of scale realized by Mead and Lexis/Nexis”
because the two businesses “had separate purchasing
departments and no joint purchasing activities.” Jbid.
Neither business even offered the other any discount
on the products or services of the other. "bid. In fact,
“Lexis/Nexis often bought paper from other vendors.”
Ibid. As sv ‘4, the only plausible economy of scale the

16

two businesses realized was the “increased interest
rate” due to nightly cash sweeps, ibid., which paled in
comparison to the stipulated facts demonstrating the
lack of a unitary relationship. Pet. App. 35a-36a; J.A.
10-13.

Respondents now attempt to overturn these
rulings by ignoring the stipulated facts to which they
agreed in the trial court, but those facts are
dispositive of the unitary business test. They
unequivocally establish that “Mead was, and is, in
the business of producing and selling forest products”
and that “Lexis/Nexis provided online information
services for legal, news and financial information in
the electronic publishing market.” J.A. 9-10. Although
Mead owned Lexis/Nexis, “Lexis/Nexis had its own
full-time management to control its day-to-day
operations.” J.A. 13. The two divergent businesses
had separate departments for every function, and the
two businesses did not share personnel or any
financial staff. J.A. 10, 13. The two businesses
maintained separate and distinct training programs,
computer systems and bank accounts. J.A. 11-12.

B. Respondents Misconstrue The Container
Corporation Ruling

1. Respondents invoke Container Corporation in
an attempt to turn the Mead paper and office supply
business and the Lexis/Nexis online information
service into one unitary business. Resp. Br. 34.

17

Respondents’ reliance on Container Corporation
is misplaced because this Court in Allied-Signal
explained that in Container Corporation, the hallmarks
of the unitary business relationship remained
functional integration, centralization of management,
and economies of scale. Allied-Signal, 504 U.S. at
789. Container Corporation demonstrated that these
essentials could be shown through “transactions not
undertaken at arm’s length; a management role by
the parent that is grounded in its own operational
expertise and operational strategy; and the fact that
the corporations are engaged in the same line of
business.” /bid. (citing Container Corp., 463 U.S. at
178, 180 n.19). None of those factors are present in
the instant case. See J.A. 10-13.

Indeed, respondents begrudgingly recognize one
of these significant distinctions between the instant
case and Container Corporation, i.e., “the taxpayer in
[Container Corporation| was engaged in the same
basic line of business as its subsidiaries.” Resp. Br.
37. Although respondents try to discount that
distinction as “immaterial,” ibid., that fact was
critical to the Court’s holding. The Court indicated
that it was reasonable to presume that two related
corporations engaged in the same line of business are
unitary. The Court explained that, where “a
corporation invests in a subsidiary that engages in
the same line of work as itself,” “it becomes much
more likely that one function of the investment is to
make better use—either through economies of scale
or through operational integration or sharing of

18

expertise—of the parent’s existing business-related
resources.” Ibid. The Court contrasted that with the
situation where, as here, there is an “{i|jnvestment in
a business enterprise truly ‘distinct’ from a
corporation’s main line of business,” which “often
serves the primary function of diversifying the
corporate portfolio and reducing the risks inherent in
being tied to one industry’s business cycle.” Container
Corp., 463 U.S. at 178.

Container Corporation demonstrates the practical
implications of this reasoning because the technical
assistance and equipment that the parent in that
case shared with its subsidiary were unquestionably
of significant value due to the fact that the parent
and its subsidiary were in the same line of business.
Id. at 172 (noting that “groups of foreign employees
occasionally visited the United States for 2-6 week
periods to familiarize themselves with [the taxpayer’s]
methods of operation” and that five executives of the
taxpayer were charged “with the task of overseeing
the operations of the subsidiaries”);’ id. at 173

* Exchanges of personnel, training programs, or day-to-day
executive oversight did not occur between Mead and
Lexis/Nexis. J.A. 10-13. Respondents identify three executives
who worked for both businesses at some point. Resp. Br. 7. In
fact, the record indicates that only a half dozen of 4000
Lexis/Nexis employees ever worked at Mead. J.A. 173. There is
no evidence that even these were strategic transfers of personnel
by Mead. Rather, the evidence supports the opposite conclusion
because one of the three executives testified that he moved to
Mead simply because he wanted to leave Lexis/Nexis for
“personal” reasons. [bid.

19

(explaining that parent could “providel | advice and
consultation regarding manufacturing techniques,
engineering, design, architecture, insurance, and cost
accounting” to its subsidiaries); id. at 179 (relying on
the. “‘substantial’ technical assistance provided by
{the parent] to the subsidiaries”); see also Exxon
Corp., 447 U.S. 207 (subsidiaries in the same line of
business as parent); Mobil Oil, 445 U.S. 425 (same).

2. Mead’s infrequent approval of major capital
expenditures by Lexis/Nexis, J.A. 15-16, bears no
similarity to the manner in which the taxpayer in
Container Corporation assisted its subsidiaries. Resp.
Br. 35. Unlike the acquisition of computer equipment
in the instant case, the assistance provided by the
parent in Container Corporation was extensive
because the parent “assisted its subsidiaries in their
procurement of equipment, either by selling them
used equipment of its own or by employing its own
purchasing department to act as an agent for the
subsidiaries.” Container Corp., 463 U.S. at 173. Thus,
in contrast to Container Corporation, Mead’s conduct
here was the “type of occasional oversight—with
respect to capital structure, major debt, and
dividends—that any parent gives to an investment in
a subsidiary,” without creating a unitary business.
Woolworth, 458 U.S. at 369."°

Respondents argue that Mead was run “in a decentralized
fashion” (Resp. Br. 6), implying that Mead’s hands-off approach
toward Lexis/Nexis supports a unitary business relationship
between the two. The record demonstrates, however, that

(Continued on following page)

20

Tellingly, respondents repeatedly assert that
there was control of Lexis/Nexis by Mead, but they
do not have accurate record support. Respondents
argue that Mead “reviewed” the business plan of
Lexis/Nexis, Resp. Br. 27, but the testimony they cite
demonstrates only that once a year Lexis/Nexis
would “explain [its] business plan and that was
pretty much it.” J.A. 163. Moreover, respondents
contend that “Mead, not Lexis/Nexis, decided how to
invest Lexis/Nexis’s excess cash.” Resp. Br. 27. The
trial testimony cited by respondents, however,
demonstrates that Lexis/Nexis “could have set up the
banking relationships * * * but chose not to.” J.A. 181
(emphasis added).”’

Respondents’ claim that Mead and Lexis/Nexis
must be considered a unitary business because Mead
submitted a consolidated tax return to Illinois is
meritless. Resp. Br. 4-5, 9, 38. As Illinois conceded by
stipulation, and the trial court recognized, the
consolidated tax return came about because Illinois
required Mead to file such a return and Mead did so
only to settle that dispute. J.A. 13; Pet. App. 39a

Lexis/Nexis “was much more independent than other divisions
of * * * Mead.” Ill. C.A. Rec. Vol. 9 at 112. Unlike Lexis/Nexis,
which “always had their own,” Mead’s other divisions “shared
services, procurement, HR, computer systems, things of that
nature.” Ibid.

" Respondents also cite to Mead’s approval of compensation
and bonuses for certain Lexis/Nexis executives. Resp. Br. 27
(citing J.A. 146). But the record demonstrates that Mead did so
for only a handful of the thousands of Lexis/Nexis employees.
JA. 13. '

21

(noting the filing was “at the direction of” respondents
and not probative)."’ Respondents’ current position
would require all nonunitary divisions of a multistate
corporation that are included in a consslidaved return
to be per se taxable as part of the taxpayer’s unitary
business, in conflict with the decisions of this Court.
Mobil Oil, 445 U.S. at 440."

III. RESPONDENTS WAIVED THEIR MERITLESS
ARGUMENT THAT THE RELATIONSHIP BETWEEN
Lexis/NExIs AND ILLINOIS ALLOWS RESPONDENTS
To Tax MEAD’s CAPITAL GAIN

Respondents contend that the Constitution
permits a State to tax an out-of-state investor’s
capital gain based solely on ties between the investment
and the taxing State. Resp. Br. 18-31, 46-49; see also
Br. of Multistate Tax Commission as Amicus Curiae
Supporting Respondents 17-19 (MTC Br.). Under this
argument, a State could impose a capital-gains tax on
an investor even if the investment is not part of the

“ Because States employ different standards as to when a
corporation and its subsidiaries must file a consolidated versus a
separate return, what state law requires cannot dictate what the
Constitution permits or else the limits of the Due Process and
Commerce Clauses would be meaningless.

" Respondents argue that Mead had “leeway as to how it
characterizes its business” in its reports and filings. Resp. Br.
30. But such “leeway” would not have permitted Mead to not
report ownership of Lexis/Nexis as an electronic publishing
business. Moreover, this Court places little significance on such
reports. Woolworth, 458 U.S. at 369 n.22.

22

investor’s unitary business and did not serve an
operational function.

A. Respondents Failed To Preserve This
Argument In The State Appellate
Court

Respondents repeatedly argue in their brief to
this Court that the relationship between Lexis/Nexis
and Illinois alone justifies Illinois’s tax on Mead’s
capital gain. Resp. Br. 18-31, 46-49. But respondents
did not raise this argument in the state appellate
court (and the court did not raise the issue sua sponte).
Rather, respondents argued that there were “two
circumstances” where the Constitution permitted the
State to apportion to itself for taxation a part of Mead’s
capital gain from its Lexis/Nexis sale: (1) if Mead and
Lexis/Nexis had a unitary business relationship and
(2) if Mead’s investment in Lexis/Nexis served an
operational function. C.A. Br. of Illinois 24-25.

Respondents thus waived under state law the
argument they now press that a connection between
the investment and the State sustains the Illinois tax.
A party that fails to raise an argument in the Illinois
appellate court waives that argument by operation of
state law. See Ill. S. Ct. R. 341(h)(7), (i) (points not
argued by the appellee are waived); Elementary Sch.
Dist. 159 v. Schiller, 849 N.E.2d 349, 358 n.2 (Ill.
2006) (appellee must raise all arguments it wishes to
preserve in its brief).

23

That waiver in state court bars respondents from
bringing the issue to this Court, because an alternative
ground for affirmance is waived in this Court if it was
not raised in, nor passed upon by, the appellate court
below. See, e.g., Glover v. United States, 531 U.S. 198,
205 (2001) (refusing to consider alternative
arguments for affirmance that were not raised in
court of appeals); Heckler v. Campbell, 461 U.S. 458,
468 n.12 (1983) (same); McGoldrick v. Compagnie
Generale Transatlantique, 309 U.S. 430, 434 (1940)
(same with respect to state courts).

B. This Argument Raises Issues That
Could Affect Other States Who Were
Not On Notice Of The Argument From
The Certiorari-Stage Briefing

Respondents’ argument based on Lexis/Nexis’s
connection to the State as a justification for Illinois’s
taxation of Mead’s capital gain also should not be
addressed by this Court because it asks this Court to
reach out and decide a constitutional question that
has limited relevance to the ordinary operation of the
Illinois taxation scheme, and one that could directly

“ As respondents point out, Resp. Br. 23 n.7, they may urge
affirmance on any ground supported by the record. But an
argument that was not preserved in the appellate court is
waived. Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 578 (2001)
(Thomas, J., concurring in part and concurring in the judgment)
(The Court does “not consider arguments for affirmance that
were not presented below.”).

24

affect other statutory schemes that are not before this
Court. Jllinois v. Gates, 462 U.S. 213, 221, 224 (1983);
Roberts v. Galen of Virginia, Inc., 525 U.S. 249 (1999)
(per curiam).

With respect to the taxation of capital gains from
intangible investments (such as from the sale of
Lexis/Nexis), Illinois’s taxation scheme does not turn
on whether the investment has ties to Illinois.
Rather, under Illinois law, apportionability of such a
gain depends upon the relationship between the
investment and the taxpayer. See 35 Ill. Comp. Stat.
Ann. 5/303(a), (b)(3), 5/304(a) (West 1994); Pet. App.
15a. In the absence of a sufficient connection between
the investment and the taxpayer under state law,
Illinois does not tax the capital gain, regardless of
whether or not ties exist between the investment and
the State. Jerome R. Hellerstein & Walter
Hellerstein, State Taxation § 9.11[2}[a] (3d ed. 2007).

By contrast, States such as New York calculate
their tax based on the relationship between the
investment and the State. See, e.g., N.Y. Tax Law
§ 210(3)(b) (Consol. 2007); In re Allied-Signal, Inc.
(Allied-Signal II), 645 N.Y.S.2d 895, 898 (N.Y. App.
Div.), appeal dismissed, 675 N.E.2d 1234 (N.Y. 1996);
Hellerstein, supra, at § 9.11[2}[a]. Such States have a
much greater interest in this waived argument,
because the constitutional permissibility of such
taxation schemes rises and falls upon respondents’
argument.

25

The States that could be greatly affected by
resolution of this argument were not on notice to
participate as amicus on this issue and, for example,
New York did not do so." Respondents did not raise
this argument in their brief in opposition, which

alone should preclude this Court’s consideration,
S. Ct. R. 15.2."

C. Reliance On An Investment’s
Relationship With The Taxing State To
Tax An Investor Cannot Be Squared
With This Court’s Precedents

Respondents’ argument that Illinois may tax
Mead for its capital gain based solely on a connection
between Lexis/Nexis and Illinois is without merit.

Respondents cannot prevail on this argument
based merely on their repeated citation (and that of
their amici) to general principles of constitutional law
with which petitioner has no disagreement—that a
State can tax a taxpayer with which it has minimal

After this Court decided Allied-Signal, the constitutionality
of New York’s scheme of taxing investors based on the
relationship between the investment and the State was
challenged. See Allied-Signal II, 645 N.Y.S.2d at 898-899. An
intermediate state appellate court rejected that challenge, ibid.,
and the New York Court of Appeals declined review, 675 N.E.2d
1234. No certiorari petition was filed.

* Indeed, respondents even rephrased the question presented
in their brief in opposition, but neglected to raise the argument
that they now press and which they had waived in the state
appellate court.

26

connections and to which it provides opportunities,
protections, and benefits, Resp. Br. 18, 23, and that
“an out-of-state company is subject to tax in any State
in which it conducts business,” id. at 46. In fact, such
taxes were paid here on an apportioned share of
Lexis/Nexis’s income earned in Illinois, as well as on
an apportioned share of Mead’s income earned in
Illinois. Respondents, however, would expand the
State’s taxing authority far beyond that."

1. Respondents’ position is foreclosed by
Allied-Signal, where this Court addressed
circumstances virtually identical to the instant case—
i.e., a State’s taxation of a nondomiciliary company’s
capital gain resulting from the sale of an investment
that also did business in the taxing State.
Specifically, in Allied-Signal a nondomiciliary
taxpayer challenged New Jersey’s tax on its capital
gain arising from the sale of an investment (stock).
504 U.S. at 773-774. Just as in the instant case, the
investment did business in New Jersey (and, in fact,
was a New Jersey corporation). [bid.

The connection between the investment and the
taxing State did not preclude this Court from
invalidating the tax on the nondomiciliary investor

“ The suggestion of amicus MTC that the goodwill taxed
here had a taxable business situs in Illinois (MTC Br. 21-23) is
wrong. The cases cited by MTC involve intangible property of
the taxpayer’s unitary business. Adams Express, 165 US. at
219. Passive investments are not subject to the business situs
principle. Jd. at 222.

27

as unconstitutional under both the unitary business
and operational function tests. As the amici States
concede (Br. of California et al. as Amici Curiae
Supporting Respondents 12), the relevant constitutional
inquiry under Allied-Signal “focuses on the objective
characteristics of the asset’s use and its relation to
the taxpayer and [the taxpayer’s] activities within the
taxing State,” 504 U.S. at 785, not on the relationship
between the asset and the taxing State.

2. The authorities that respondents cite do not hold
otherwise. Respondents rely heavily on International
Harvester Co. v. Wisconsin Department of Taxation,
322 U.S. 435 (1944), and Wisconsin v. J.C. Penney
Co., 311 U.S. 435 (1940), as purportedly justifying
their argument that Lexis/Nexis’s connection to
Illinois is enough to tax Mead for the capital gain on
its sale of Lexis/Nexis. But neither of those cases
supports respondents. Those cases stand for the
unremarkable proposition that a State has the power
to tax a business for its share of income that the
business earned within its borders.

Both cases arose because of a Wisconsin law that
required corporations doing business in that State to
pay a tax on dividends distributed to shareholders.
Int'l Harvester, 322 U.S. at 437; J.C. Penney, 311 U.S.
at 439-440. This Court upheld in both instances a
Wisconsin tax on an apportioned share of the
dividend, because the business was being conducted
in the taxing State. Int'l Harvester, 322 U.S. at 438,
442: J.C. Penney, 311 U.S. at 440 n.1, 444-445. The
Court reached this result because the tax in these

28

cases was a deferred income tax imposed on the
corporation that did business within the State, and
not on an out-of-state investor shareholder that
received dividends. Jntl Harvester, 322 U.S. at 441
(“The power to tax the corporation’s earnings includes
the power to postpone the tax until distribution of
those earnings ***.”); id. at 447 (Jackson, J.
dissenting) (explaining that the majority can sustain
the tax because it is “an income tax on the
corporation, deferred until the income _ was
distributed,” even though the dissent views that it “is
not an income tax *** but is a tax on the
stockholder”); J.C. Penney, 311 U.S. at 442 (“The
practical operation of this legislation is to impose an
additional tax on corporate earning within Wisconsin
but to postpone the liability for this tax until earnings
are paid out in dividends.”). In the instant case, by
contrast, Illinois is taxing the out-of-state investor,
Mead, rather than its investment, Lexis/Nexis.

These precedents are consistent with this Court’s
unitary business and operational function precedents.
In Allied-Signal and its predecessor decisions, just like
International Harvester and J.C. Penney, this Court
permitted a State to tax a company on the
apportioned share of the income (or dividends) that
are directly attributable to the company’s unitary
business in the State. But this Court’s precedents do
not support the proposition that a State can tax a
company on an apportioned share of a capital gain
that is unrelated to the company’s unitary business
conducted in that State, merely because the

29

investment associated with the gain has a connection
to the taxing State.

Indeed, under respondents’ theory, every out-of-state
investor could have to pay taxes on the capital gain
from a passive investment in every State where the
investment does business. The Constitution certainly
does not permit such a result.

IV. A Ruwinc IN RESPONDENTS’ Favor WoULD
Upset SETTLED EXPECTATIONS AND CREATE A
Risk Or DUPLICATIVE TAXATION

A. Respondents propose an unconstrained rule
so that a State may apportion “any gain realized from
the sale of a subsidiary[ ] over which the taxpayer had
considerable control and with which it dealt
regularly.” Resp. Br. 57. This rule would transform
every wholly-owned subsidiary into an operational
asset of the parent, and create chaos because States
and corporations have relied upon this Court's
well-settled principles to the contrary.

As this Court has recognized, state legislatures
have relied on this Court's distinction between assets
that serve an operational function and those that
serve an investment function—the very distinction
that Illinois seeks to eviscerate. Allied-Signal, 504
U.S. at 785 (“State legislatures have relied upon our
precedents by enacting tax codes which allocate
intangible nonbusiness income to the Jomiciliary
State ***.”). Multistate corporations likewise have
relied on Allied-Signal in structuring transactions

30

with a degree of tax certainty. See Br. of The Walt
Disney Company, as Amicus Curiae Supporting
Petitioner 25-26.

The reliance placed upon this Court’s precedent
is demonstrated by the consistently narrow
interpretation of the operational function test by
state courts in the fifteen years since Allied-Signal.
OSG Bulk Ships, 961 P.2d at 414. Other than the
decision below, state courts have repeatedly held that
an investment does not serve an operational function
where it was used neither as a source of working
capital nor as a hedge against a fluctuating supply of
a key commodity. See Hercules Inc. v. Commissioner
of Revenue, 575 N.W.2d 111, 117 (Minn. 1998);
Hercules Inc. v. Comptroller of Treasury, 716 A.2d
276, 281-284 (Md. 1998) (observing that this Court
“has not encompassed strategic, long-range decisions
of a company within operational functions”). The
drastic modification of the operational function test
suggested by respondents “would disrupt *** an
area of the law in which the demands of the national

" Respondents inexplicably suggest that the Hercules
courts’ determination of no-operational function was based on
the fact that the taxpayer exercised no control over the asset.
Resp. Br. 56-57. The issue of control was one factor (of many) in
these courts’ unitary-relationship analyses, 575 N.W.2d at 116;
716 A.2d at 280-281, but there was no discussion of exercise of
control in the courts’ application of the operational function test,
575 N.W.2d at 116-117; 716 A.2d at 281-284. Illinois’s reliance
(Resp. Br. 55) on the California Supreme Court Hoechst Celanese
decision is also misplaced, as noted above, see page 11.

31

economy require stability.” Allied-Signal, 504 U.S. at
786.

B. This case is not just about Illinois’s attempt
to tax an apportionment of Mead’s capital gain. Resp.
Br. 50. Under respondents’ rule, every State where a
corporation does business could tax an apportionment
of the capital gain earned by that corporation from
intangibles. Such taxing authority by nondomiciliary
States would be in addition to the constitutional
authority of the domiciliary State to tax the entirety
of such a gain. Mobil Oil, 445 U.S. at 444 (“Taxation
by apportionment and taxation by allocation to a

single situs are _ theoretically incommensurate
* * * by

Such potential for double taxation is the final
defeat for respondents. Contrary to their claim (Resp.
Br. 50-51), this Court has never required evidence of
duplicative taxation in a particular case to invalidate
an unconstitutional taxing scheme that would allow
such duplication. Indeed, the potential for double
taxation was an express concern of the Court in
Allied-Signal. See 504 U.S. at 785 (“Were we to adopt
New Jerseys theory, we would be required” to
“authorize what would be certain double taxation.”)."”

" Respondents are wrong that Kemppel v. Zaino, 746
N.E.2d 1073 (Ohio 2001) dictates that Ohio would have
apportioned the capital gain. That case concludes that, under
Ohio law, capital gains from a business's total liquidation are
allocated to the taxpayer’s domicile. Jd. at 1076-1077.

32

CONCLUSION

For the reasons set forth above and in
petitioner’s opening brief, the Court should reverse
the judgment below.

Respectfully submitted,
PAUL H. FRANKEL
BETH S. BRINKMANN Counsel of Record
BRIAN R. MaTsuI CRalc B. FIELDS
NICOLE D. DEVERO ROBERTA MOSELEY NERO

MORRISON & FOERSTER LLP MORRISON & FOERSTER LLP
2000 Pennsylvania Ave.,.N.W. 1290 Avenue of the Americas
Washington, DC 20006 New York, NY 10104

(202) 887-1544 (212) 468-8000

Counsel for Petitioner

DECEMBER 28, 2007

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0535%3A11. Public record. Not legal advice.