RESPONDENT: United States
LOCATION: Dr. Nguyen's Office
DOCKET NO.: 01-1209
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Ninth Circuit
CITATION: 537 US 437 (2003)
ARGUED: Dec 09, 2002
DECIDED: Mar 04, 2003
Kenneth Steven Geller - Argued the cause for the petitioner
Kent L. Jones - Argued the cause for the respondent
Facts of the case
In 1971, Congress enacted tax provisions providing special tax treatment for export sales made by an American manufacturer through a subsidiary that qualified as a "domestic international sales corporation" (DISC). Regarding research and development (R&D) expenses, Treasury Regulation 26 CFR section 1.861-8(e)(3) provides what must be treated as a cost when calculating combined taxable income (CTI), and how those costs should be allocated among different products and apportioned between the DISC and its parent. Under this regulation, the Internal Revenue Service reallocated Boeing's company sponsored R&D costs for 1979 to 1987, thereby decreasing the untaxed profits of its export subsidiaries and increasing its taxable profits on export sales. Subsequently, Boeing filed suit, arguing that it had an unqualified right to allocate its company sponsored R&D expenses to specific products and to exclude any allocated R&D from being treated as a cost of another product. In granting Boeing summary judgment, the District Court found section 1.861-8(e)(3) invalid due to a specific DISC regulation giving the taxpayer the right to group and allocate income and costs by product or product line. The Court of Appeals reversed.
Was Boeing Co. required to take into account expenses incurred for R&D in accordance with applicable Treasury regulations in calculating its "combined taxable income" for purposes of determining taxation with respect to its domestic international sales corporation and foreign sales corporation?
Media for Boeing Company v. United StatesAudio Transcription for Oral Argument - December 09, 2002 in Boeing Company v. United States
Audio Transcription for Opinion Announcement - March 04, 2003 in Boeing Company v. United States
William H. Rehnquist:
The opinions of the Court in two cases will be announced by Justice Stevens.
John Paul Stevens:
The first case is 01-1209 Boeing Company against the United States.
In 1971 and again in 1984, Congress enacted statutes that provide tax incentives for American manufacturers to increase their export sales.
Because both statutes provide for a lesser tax burden on qualifying subsidiaries that handle exports, it is advantageous for the parent to minimize its share and maximize the subsidiary share of the aggregate income produced by export sales.
The statutes, however contain rather complex provisions limiting the amount of the aggregate taxable income that maybe assigned to the subsidiary.
This case involves the dispute over the method used by Boeing to allocate several billion dollars of research and development cost between the parent and its export subsidiaries.
The rules for allocating such cost are not set forth in the statutes but are covered by Treasury Department Regulations.
In its challenge to the Government's computation of its taxes for the years 1979 through 1987, Boeing contends that the Government has misinterpreted one regulation and improperly relied on another.
The District Court, following a decision by the Court of Appeals for the Eight Circuit, agreed with Boeing, but the Court of Appeals for the Ninth Circuit reversed.
We granted certiorari to resolve the conflict.
Despite the fine argument advanced by counsel, for Boeing for reason stated in an opinion filed with the Clerk, we affirm the judgment of the Ninth Circuit.
Justice Thomas has filed a dissenting opinion that is joined by Justice Scalia.