Amerada Hess Corporation v. Director, Division of Taxation, New Jersey Department of the Treasury

by Harry Blackmun

United States Supreme Court

490 U.S. 66

Amerada Hess Corporation  v.  Director, Division of Taxation, New Jersey Department of the Treasury

Appeal from the Supreme Court of New Jersey

No. 87-453^{[Note a]}  Argued: Nov. 29, 1988. --- Decided: April 3, 1989

Syllabus

Appellant oil companies do business in New Jersey and are subject to that State's Corporation Business Tax. They are also subject to the federal windfall profit tax on their crude-oil product on, which does not occur in New Jersey. They each sought a deduction for the federal tax in calculating "entire net income" on their 1980 and 1981 state tax returns, but appellee, the Director of the New Jersey Division of Taxation, assessed deficiencies on the ground that the "add-back" provision of the state tax statute prohibited corporations from deducting a federal tax that is "on or measured by profits or income." The State Tax Court affirmed the assessments, but the Appellate Division of the State Superior Court reversed. The State Supreme Court in turn reversed and reinstated the Tax Court's judgment, holding that the windfall profit tax is measured by "profits or income" for the purposes of the add-back provision and that, as so construed, that provision did not violate the Commerce Clause or the Fourteenth Amendment to the Federal Constitution.

Held:

1. The New Jersey tax satisfies all four elements of the test set forth in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326, and therefore passes Commerce Clause scrutiny even though the add-back provision denies appellants deductions for windfall profit tax payments. Pp. 72-79.

(a) New Jersey has a "substantial nexus" with the activities that generate appellants' "entire net income," including oil production occurring entirely outside the State, since each appellant's New Jersey operations are part of an integrated "unitary business" that includes crude-oil production. P. 73.

(b) The tax is fairly apportioned, since the part of the "entire net income" to be taxed is determined according to the standard three-factor apportionment formula that this Court has expressly approved. See, e.g., Container Corp. of America v. Franchise Tax Board, 463 U.S. 159, 170, 103 S.Ct. 2933, 2943, 77 L.Ed.2d 545. The use of the formula as applied to appellants is not invalid on the ground that the windfall profit tax is an exclusively out-of-state expense, since the costs of a unitary business cannot be deemed confined to the locality in which they are incurred. Id., at 182, 103 S.Ct. at 2949. Pp. 73-75.

(c) The tax does not discriminate against interstate commerce. The add-back provision is not facially discriminatory, since there is no explicit discriminatory design to the tax. Nor does the provision apply exclusively to a localized industry, since it generally excludes any federal tax "on or measured by income or profits," including the nationwide federal income tax. Moreover, appellants concede that no discriminatory motive underlies the provision, which cannot be held to exert pressure on an interstate business to conduct more of its activities in New Jersey. Pp. 75-79.

(d) The tax is "fairly related" to the benefits the State provides appellants, including police and fire protection, a trained work force, and the advantages of a civilized society. P. 79.

2. The New Jersey tax does not violate the Fourteenth Amendment. Pp. 79-80.

107 N.J. 307, 526 A.2d 1029 (1987), affirmed.

BLACKMUN, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and BRENNAN, WHITE, MARSHALL, STEVENS, and KENNEDY, JJ., joined. SCALIA, J., filed an opinion concurring in the judgment, post, p. 80. O'CONNOR, J., took no part in the consideration or decision of the cases.

Mark L. Evans, for appellants. Mary R. Hamill, Trenton, N.J., for appellees.

Justice BLACKMUN delivered the opinion of the Court.

Notes

Note a  Together with No. 87-464, Texaco Inc. et al. v. Director, Division of Taxation, New Jersey Department of the Treasury, also on appeal from the same court.