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Tuesday was Tax Day at the Supreme Court as it was in the rest of the nation, with the justices handing down two tax rulings, including one that could affect big corporations facing tax bills in several states. Chief Justice John Roberts Jr. took note of the April 15 coincidence as he opened the Court session, announcing that, “Remarkably enough, we have two tax cases to announce today.” The first was MeadWestvaco Corp. v. Illinois Department of Revenue, closely watched by revenue-thirsty states seeking to tax multistate and international corporations. The dispute arose when Ohio-based Mead sold its Lexis/Nexis research service in 1994, realizing $1.5 billion in capital gain. Illinois assessed Mead $4 million in taxes for what it believed was its apportioned share of taxes on the gain. Mead, now MeadWestvaco, appealed, but Illinois won in state courts under a broad theory that viewed Lexis/Nexis as serving the “operational purpose” of Mead, even though it was not fully integrated or centrally managed as part of Mead’s “unitary business.” Justice Samuel Alito Jr. said the Illinois court was wrong to use the “operational purpose” test as justification for taxation. The Supreme Court’s precedents, he said, “were not intended to modify the unitary business principle by adding a new ground for apportionment.” The Court sent the case back to Illinois courts for a determination on the unitary business question. Mayer, Brown, Rowe & Maw tax expert Richard Leavy said that by returning the case to Illinois, the ruling Tuesday postpones a determination of the important state taxation issues that are at stake. But Reed Smith state tax expert Donald Griswold says the ruling was an important clarification of how the Court’s precedents should be interpreted in determining when a state can tax out-of-state companies. “It’s great news for a more precise reading of the law,” Griswold adds. “Every corporation with a very large gain or a very large loss faces this issue.” He added that, depending on how they are structured, some companies could benefit and others could be harmed by a narrower interpretation of high court precedents. Also on Tuesday, the Court issued United States v. Clintwood Elkhorn Mining Corp. only three weeks after it was argued. Mining companies challenged the constitutionality of a federal tax on coal exports. The tax was later invalidated, but the Supreme Court ruled that standard deadlines for filing tax refund claims limited how much the companies could recover. Roberts wrote the decision for a unanimous Court.
Tony Mauro can be contacted at

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