Container Corporation of America v. Franchise Tax Board

PETITIONER: Container Corporation of America
RESPONDENT: Franchise Tax Board
LOCATION: U.S. Court of Appeals for the Fifth Circuit

DOCKET NO.: 81-523
DECIDED BY: Burger Court (1981-1986)
LOWER COURT: State appellate court

CITATION: 463 US 159 (1983)
ARGUED: Jan 10, 1983
DECIDED: Jun 27, 1983

ADVOCATES:
Franklin C. Latcham - on behalf of the Appellant
Neal J. Gobar - on behalf of the Appellee
The Clerk - on behalf of the appellant -- rebuttal

Facts of the case

Question

Media for Container Corporation of America v. Franchise Tax Board

Audio Transcription for Oral Argument - January 10, 1983 in Container Corporation of America v. Franchise Tax Board

Audio Transcription for Opinion Announcement - June 27, 1983 in Container Corporation of America v. Franchise Tax Board

Warren E. Burger:

The judgment and opinion of the Court in Container Corporation of America against Franchise Tax Board will be announced by Mr. Justice Brennan.

William J. Brennan, Jr.:

This case involves a California Franchise Tax and is here on Appeal from the Court of Appeals of California.

That Court sustained a tax levied under California's Franchise Tax Act against appellant, Container Corporation, rejecting Container's argument that the tax as applied to it violated the Due Process and Commerce Clause -- Clauses of the Federal Constitution.

During the tax years involve, Container Corporation controlled some 20 foreign subsidiaries located in four Latin American and four European countries.

The California franchise tax returns filed by Container admitted, however, to include any income of these subsidiaries and also omitted all of its subsidiaries, payroll, property and sales in calculating the share of its net income which was apportionable to California under that Franchise Tax Acts three-factor formula.

California took the position that Container should have treated its overseas subsidiaries as part of its unitary business rather than as a passive investment and increased Container's tax liability accordingly.

Container then paid the additional amounts under protest and sued in California Superior Court for a refund, raising the constitutional challenges the increased tax.

The Superior Court upheld California's assessment -- assessment and the California Court of Appeals affirmed.

And we in turn affirm the Court of Appeals.

The opinion we have filed doesn't readily land itself to oral announcement and I'll therefore only briefly state our holdings that lead to our conclusion.

First, we hold that California's application of the unitary business principle to Container and its foreign subsidiaries was proper.

Second, we hold that California's use of the three-factor formula of payroll, property, and sales to apportion the income of the unitary business consisting of Container and its subsidiaries was fair.

Third, we hold that California had no obligation under the Foreign Commerce Clause to employ the arm's length analysis used by the Federal Government and most foreign nations in evaluating the tax consequences of intercorporate relationships.

Fourth, we hold that the double taxation occasioned by the California scheme is not constitutionally impermissible.

Fifth and finally, we hold that the California tax does not violate the one voice standard under which a state tax at variance with federal policy will be struck down if it either implicates foreign policy issues which must be left to the Federal Government or violates a clear federal directive.

Justice Powell joined by the Chief Justice and Justice O'Connor has filed a dissenting opinion.

Warren E. Burger:

Justice Stevens.

William J. Brennan, Jr.:

Justice Stevens took no part in the consideration or decision of this case.

Excuse me, Chief Justice.

Warren E. Burger:

Thank you Mr. Justice Brennan.