This summary was computer-generated without any editorial revision. It is not official, has not been checked for accuracy, and is NOT citable.
Facts
NCR Corporation, a Maryland-incorporated company with its principal place of business in Ohio, operates a global business manufacturing and selling business equipment, computers, and machinery. The New Mexico Taxation and Revenue Department assessed corporate income taxes, penalties, and interest on NCR for the years 1981-1987, amounting to approximately $439,681.80. The assessments were based on an apportionment formula that included income from NCR's foreign subsidiaries. NCR contested the assessments, arguing that the taxation of its foreign income violated constitutional provisions (paras 2-7).
Procedural History
- Administrative Hearing Officer, August 29, 1990: The hearing officer upheld the tax assessments against NCR, except for adjustments related to previously taxed Subpart F income and credits for prior tax payments (para 7).
Parties' Submissions
- Appellant (NCR Corporation): Argued that New Mexico's taxation of its foreign source income violated the Foreign Commerce Clause, the Due Process Clause, and the apportionment formula was unfair. NCR contended that the tax resulted in impermissible multiple taxation, contravened national policy, and failed to account for its foreign subsidiaries' contributions (paras 1, 8-9, 27-30, 35-36).
- Respondent (New Mexico Taxation and Revenue Department): Asserted that the tax was constitutionally valid, fairly apportioned, and applied to NCR's unitary business income. The Department argued that the tax did not violate the Foreign Commerce Clause or Due Process Clause and was consistent with federal and state law (paras 9, 17, 20, 26).
Legal Issues
- Whether New Mexico's corporate income tax on NCR's foreign source income violated the Foreign Commerce Clause (para 8).
- Whether the inclusion of NCR's Subpart F income in the apportionable tax base violated the Due Process Clause (para 27).
- Whether New Mexico's apportionment formula was unfair and required modification (para 35).
Disposition
- The Court of Appeals affirmed the decision of the hearing officer, upholding the tax assessments against NCR, except for adjustments related to previously taxed Subpart F income and credits for prior tax payments (para 40).
Reasons
Per Donnelly J. (Alarid and Chavez JJ. concurring):
Foreign Commerce Clause: The Court held that New Mexico's tax did not violate the Foreign Commerce Clause. The tax was imposed on NCR's unitary business income, not directly on its foreign subsidiaries. The apportionment formula was consistent with the Uniform Division of Income for Tax Purposes Act (UDITPA) and did not create impermissible multiple taxation or impair federal uniformity in foreign commerce regulation. The Court relied on precedents such as Container Corp. and distinguished the case from Japan Line (paras 9-26).
Subpart F Income: The Court rejected NCR's argument that Subpart F income was hypothetical and not taxable. It found that Subpart F income, as defined under federal law, was properly included in NCR's apportionable tax base. The Court emphasized that NCR's unitary business operations justified the inclusion of this income under the Due Process Clause (paras 27-34).
Apportionment Formula: The Court determined that NCR failed to prove that New Mexico's apportionment formula was unfair or resulted in a grossly distorted tax burden. The formula met the standards of internal and external consistency as required by Container Corp. and did not violate constitutional principles (paras 35-39).
Adjustment for Prior Payments: The Court agreed with the hearing officer's finding that NCR was entitled to credits for taxes previously paid on certain Subpart F income and remanded the case for determination of the allowable adjustment (para 40).