General Motors Corp. v. District of Columbia

Background

A large car manufacturer (General Motors) sued the District of Columbia tax agency over how the District taxed corporate income. The District’s tax law lets its commissioners write rules to decide what part of a company’s income is “fairly attributable” to the District. The commissioners adopted a rule that apportioned income to the District solely by the share of a company’s sales made there. General Motors made its cars and shipped them from plants outside the District but sold substantial amounts to dealers inside the District.

Reasoning

The Court asked whether the commissioners’ sales-only rule matched the District law’s command that income be deemed to come from sources “within and without the District” when business is carried on both inside and outside the District. The Court concluded the sales-only formula was not authorized by the statute because it could allocate all income to the sales location even when significant parts of the business occur elsewhere. The Court emphasized that the statute requires some portion of income be treated as coming from outside the District when business activity exists both inside and outside.

Real world impact

The decision prevents the District from using a sales-only formula under the cited statute and sends the case back for further proceedings consistent with the opinion. The Court noted the rule’s conflict with the three-factor apportionment used by most States and the danger that a sales-only approach would cause multiple or inconsistent taxation and distort business location choices.

Dissents or concurrances

Two Justices disagreed and would have upheld the District’s rule, but the majority reversed the lower court and limited its decision to statutory interpretation.