MeadWestvaco Corp. v. Illinois Department of Revenue

PETITIONER:MeadWestvaco Corp., successor in interest to Mead Corp.
RESPONDENT:Illinois Department of Revenue et al.
LOCATION:Earthquake Park

DOCKET NO.: 06-1413
DECIDED BY: Roberts Court (2006-2009)
LOWER COURT: State appellate court

CITATION: 553 US 16 (2008)
GRANTED: Sep 25, 2007
ARGUED: Jan 16, 2008
DECIDED: Apr 15, 2008

Beth S. Brinkmann – on behalf of the Petitioner
Brian F. Barov – on behalf of the Respondents

Facts of the case

MeadWestvaco, an Ohio company, sold its lucrative Lexis/Nexis division for a $1 billion profit in 1994. Illinois attempted to claim a portion of that profit when collecting taxes from MeadWestvaco for doing business in the state. Illinois argued that Lexis/Nexis was an “operational” part of Mead’s business and therefore subject to taxation outside Mead’s home state. Mead countered that Lexis/Nexis was merely an “investment,” whose sale was immune from taxation from outside jurisdictions. The trial court found that the division was key to Mead’s operations, and therefore taxable, and the Illinois Appellate Court agreed.


Under the governing Supreme Court precedent,Allied-Signal, Inc. v. Director, Div. of Taxation, 504 U.S. 768 (1992), may a parent company use a division as a non-taxable investment when the division is involved in a substantially different business segment but the parent provides cash infusions, investment advice and oversight?

Media for MeadWestvaco Corp. v. Illinois Department of Revenue

Audio Transcription for Oral Argument – January 16, 2008 in MeadWestvaco Corp. v. Illinois Department of Revenue

Audio Transcription for Opinion Announcement – April 15, 2008 in MeadWestvaco Corp. v. Illinois Department of Revenue

John G. Roberts, Jr.:

Remarkably enough, we have two tax opinions to announce today.

The first is by Justice Alito.

Samuel A. Alito, Jr.:

This is Meadwestvaco Corporation versus Illinois Department of Revenue.

This case comes to us on writ of certiorari to the Appellate Court of Illinois.

The petitioner is a successor in interest to the Mead Corporation, an Ohio Corporation, engaged in the production and sale of paper goods.

The respondent is the Illinois Department of Revenue.

We have been asked to decide whether a tax levied by Illinois on an apportioned share of the capital gain that Mead realized in 1994, violates the Commerce and Due Process Clauses of the United States Constitution.

In 1994, Mead realized the capital gain on the sale of one of its divisions, the online research service Lexis/Nexis.

The State of Illinois took the position that an apportioned share of this gain was taxable in Illinois.

Mead paid the tax under protest and filed this suit in state court.

The trial court found that Lexis/Nexis was not part of the unitary business that Mead conducted in Illinois, but that the State could nevertheless tax an apportioned share of the gain because Lexis/Nexis serves an operational function in that business.

The Appellate Court of Illinois affirmed.

It agreed that Lexis served an operational function in Mead’s business and did not reach the question whether Lexis and Mead formed a unitary business.

As we explain at greater length in the opinion filed today with the clerk of the Court, the concept of operational function simply identifies one way in which an asset can form part of the tax payer’s unitary business.

The operational function test, as the state courts termed it, was not intended to supplement the unitary business principle with a separate ground for apportionment.

Once the Court determines that two businesses are not unitary, the constitutional inquiry is generally at an end.

The trial court here found that Lexis and Mead were not unitary, but the Appellate Court of Illinois, relying on its operational function analysis, made no such determination.

It is free to consider that question on remand and we express no opinion on it now.

The judgment of the Appellate Court of Illinois is vacated and this matter is remanded to that Court for further proceedings, not inconsistent with our opinion.

The judgment of the Court is unanimous.

Justice Thomas has filed a concurring opinion.