MeadWestvaco Corporation v. Illinois Department of Revenue
The Mead Corporation, an Ohio corporation, sold one of its subsidiary companies, Lexis/Nexis, and received over $1 billion in capital gains. Lexis/Nexis, which was not under the day-to-day operation of Mead, was also located in Ohio. When Mead filed a tax return in Illinois, it did not include the gains from the sale of Lexis/Nexis as part of its apportionable business income, which is the income from a unitary business that can be taxed in Illinois, proportional to the amount of business done in-state. The state audited Mead's Illinois income tax returns, finding that Mead erred in classifying the gains from the sale as non-business income.
The Illinois Court of Appeals affirmed because, as required by the United States Constitution, the capital gains from the sale of Lexis/Nexis possessed the requisite relationship to Mead's business activities in Illinois. A state may apportion income from a sale of an asset when the asset, here Lexis/Nexis, served an "operational function rather than an investment function." The Court of Appeals agreed with the lower court's finding that while Lexis/Nexis and Mead were separate companies, Lexis/Nexis was part of Mead's overall business model and was not merely an investment. Therefore, it was appropriate for Illinois to include the income from the sale of Lexis/Nexis in Mead's apportionable income.
Question Presented
Is the attempt by Illinois to tax the approximately $1 billion gain realized by Petitioner when it sold its investment in Lexis/Nexis in 1994 (which it acquired in 1968 for $6 million and which functioned for 26 years as an independent, nonunitary business) in direct conflict with the decisions of the Court in Allied-Signal, Inc. v. Director, Division of Taxation, 504 U.S. 768 (1992), F.W. Woolworth Co. v. Taxation & Revenue Department of New Mexico, 458 U.S. 354 (1982) and ASARCO Inc. v. Idaho State Tax Commission, 458 U.S. 307 (1982) and the Due Process and Commerce Clauses of the United States Constitution?
