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NCR Corp. v. Taxation and Revenue Dept., 115 N.M. 612, 856 P.2d 982, 1993 -NMCA- 060

Facts

NCR Corporation, incorporated in Maryland and headquartered in Ohio, was assessed corporate income taxes by the New Mexico State Taxation and Revenue Department for the years 1981 through 1987, totaling approximately $439,681.80, plus interest and penalties. The assessments were primarily based on income earned outside the United States by NCR and its foreign subsidiaries. NCR protested the assessments, arguing that New Mexico's taxation of its foreign source income violated the Foreign Commerce Clause and the Due Process Clause of the U.S. Constitution.

The Department issued corporate income tax assessments against NCR for taxes due in 1981 through 1987, totaling approximately $439,681.80, plus interest and penalties.

Issue

Did New Mexico's corporate income tax apportionment scheme violate the Foreign Commerce Clause and the Due Process Clause of the United States Constitution?

NCR contends that (1) the Foreign Commerce Clause, Article I, Section 8, Clause 3 of the United States Constitution prohibits New Mexico from imposing a corporate income tax upon NCR's foreign source royalty, interest, and dividend income; (2) the Due Process Clause, Amendment XIV of the United States Constitution prohibits New Mexico from taxing an apportioned share of NCR's Subpart F income; and (3) the Due Process Clauses of the state and federal constitutions require that New Mexico modify its apportionment formula as it relates to NCR.

Rule

The court applied the principles established in Complete Auto Transit, Inc. v. Brady and Japan Line, Ltd. v. County of Los Angeles, which require that state taxes on interstate and foreign commerce must have a substantial nexus with the state, be fairly apportioned, and not create a risk of multiple taxation.

The general premise underlying unitary taxation is that the value of a corporation's unitary business is apportionable to a state for taxation if the corporation's operations within the state contribute to the profitability of the entity's overall business.

Analysis

The court found that New Mexico's tax was applied to NCR's unitary business income, which included income from foreign subsidiaries, and that the apportionment formula used by the state was consistent with the requirements of the U.S. Constitution. The court concluded that the tax did not violate the Foreign Commerce Clause, as it was fairly apportioned and did not create a substantial risk of international multiple taxation.

The tax in question is not a tax on any of NCR's foreign subsidiaries; instead, the tax falls upon an apportioned share of NCR's income which it receives in the form of royalties, interest, and dividends from its unitary foreign subsidiaries.

Conclusion

The court affirmed the decision of the State Taxation and Revenue Department in part, but remanded the case for a determination of the amount of credits due for taxes previously paid by NCR.

We conclude that it does and that the basic premise and holding of the Court in Container Corp. is controlling here.

Who won?

The State Taxation and Revenue Department prevailed in the case, as the court upheld the majority of the tax assessments against NCR, finding that the imposition of the tax was constitutional.

We affirm the decision and order of the administrative hearing officer entered below; we remand, however, for determination of the amount of credits due for taxes previously paid by NCR.

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