ASARCO Inc. v. Idaho State Tax Commission

Background

ASARCO is a New Jersey corporation headquartered in New York that mines, smelts, and refines nonferrous metals and runs a silver mine and an administrative office in Idaho. Idaho audited ASARCO and treated dividends, interest, and capital gains the company received from five partly foreign subsidiaries as apportioned "business" income under Idaho’s version of the UDITPA, assessing tax deficiencies for 1968–1970. ASARCO challenged that treatment in the state courts and the case reached this Court.

Reasoning

The Court asked whether Idaho had a sufficient connection to that intangible income to tax a share of it. Relying on the unitary-business principle from earlier cases, the Court examined the record for each subsidiary and concluded the five dividend‑paying companies operated as separate, discrete businesses with little or no operational link to ASARCO’s Idaho activities. Because those earnings lacked a rational relationship to Idaho’s in‑state values, the Court held Idaho could not constitutionally apportion and tax those dividends, and it applied the same reasoning to the related interest and capital gains.

Real world impact

Nondomiciliary states may not apportion and tax dividend, interest, or capital gain income from subsidiaries that are economically independent of a parent’s in‑state operations. Multistate corporations will face less state tax exposure on such passive investment income, and state tax authorities must show closer factual ties or rely on a company’s commercial domicile. The decision leaves open congressional action to adopt a national approach.

Dissents or concurrances

Justice O’Connor (joined by two Justices) dissented, warning this due-process approach could leave investment income untaxed by any State and urging Congress to craft a uniform solution; Chief Justice Burger concurred, noting Congress remains able to act.