NCR Corp. v. Comptroller of the Treasury

ADKINS, Judge. This case involves corporate tax assessments by the Comptroller of the Treasury (Comptroller) against NCR Corporation (NCR) for the tax years 1972 through 1977. NCR contends that: 1. It should have been allowed to deduct gross-up from its federal taxable income for 1976; 2. it should have been allowed to deduct domestic placement interest income from its federal taxable income; and 3. the Comptroller incorrectly applied the Maryland apportionment formula to NCR’s foreign-source income when he excluded from the denominators the foreign subsidiaries’ property, payroll, and sales that generated the income.

We reject NCR’s first two arguments and remand for further fact-finding as to the third. We thus affirm in part and reverse in part the judgment of the Court of Special Appeals in Comptroller v. NCR Corp., 71 Md.App. 116 , 524 A.2d 93 (1987). This case made its way from the Tax Court to the Circuit Court for Baltimore City to the Court of Special Appeals. To the extent that particular happenings at any of these ¹²² levels are important to our decision, we shall discuss them in that portion of this opinion dealing with the particular issue involved.

We preface our discussion by noting that during the tax years in question, NCR engaged in the manufacture of business equipment and machinery. It sold its products and related supplies and services at wholesale and retail levels throughout the world.. Its corporate headquarters and principal place of business were in Ohio, but it had several sales and service offices and a marketing administrative office in Maryland. The Tax Court determined that NCR’s worldwide operations constituted a unitary business for apportionment purposes.

NCR does not contest that finding. I. NCR’s 1976 Gross-Up Income Federal tax law permits (or at times relevant to this case permitted) a United States corporation owning at least a 10 percent interest in the voting stock of a foreign subsidiary to elect to claim credit for certain foreign taxes paid by that subsidiary. 26 U.S.C. §§ 901 (a), 901(b)(1) and 902(a). For the purposes of these provisions, the credit is allowed for that portion of the foreign taxes which the domestic corporation is deemed to have paid. NCR is such a corporation with respect to ten foreign subsidiaries and it elected to take a “deemed paid” foreign tax credit for the tax year 1976.

By virtue of 26 U.S.C. § 78 , NCR was required to treat those “deemed paid” credits as “grossed-up” dividend income for federal tax purposes (hence the term “gross-up”). It then claimed a credit against its federal income tax pursuant to § 902(a). 1 On its Maryland return, however, NCR deducted the gross-up from its federal taxable income. ¹²³ The Comptroller disallowed the deduction, on the ground that under Md.Code (1975 Repl.Vol.), Art. 81, § 280A(a), the net taxable income of a corporation, for Maryland tax purposes, is “the taxable income of such taxpayer as defined in the laws of the United States____” Thus, the gross-up was returned to NCR’s income. The Tax Court agreed that § 280A(a) required this treatment. The Circuit Court for Baltimore City did not; it held that taxation of “fictitious” gross-up income was not mandated by § 280A(a) and was unconstitutional by virtue of the due process clause of the fourteenth amendment to the United States Constitution.

The Court of Special Appeals held the Tax Court to be correct. It reversed the circuit court, but did not pass on the constitutional issue. NCR insists that a proper interpretation of Maryland law results in the exclusion of gross-up in 1976, and that if we read Maryland law otherwise, it is unconstitutional. A. Gross-up and Article 81, § 280A(a) As we have seen, § 280A(a) instructs, as it did in 1976, that “[t]he net income of a corporation shall be the taxable income of such taxpayer as defined in the laws of the United States ... for the corresponding taxable period____” The purpose of that provision is “to bring the State taxation system in conformity with the federal scheme.” Comptroller v. American Satellite Corp., 312 Md. 537, 545 , 540 A.2d 1146, 1150 (1988).

Since NCR’s 1976 federal taxable income included the gross-up, and since the Maryland statutes applicable to 1976 contained no authority to adjust or deduct that figure, it should, one would think, be included in Maryland taxable income. See Comptroller v. American Satellite Corp., supra. But NCR, pointing to somewhat unusual legislative history, reaches a contrary conclusion. NCR explains that when § 280A was enacted in 1967, subsection (c) provided that “[tjhere shall be subtracted from taxable income of ... [the] taxpayer: ...

(4) dividend income to the extent included in taxable income____” Thus, all dividend income was effectively excluded from taxation ¹²⁴ by Maryland. That changed in 1976. By Ch. 904 of the Acts of that year, subsection (c) was amended to repeal the dividend exclusion. The amended version applied “to all taxable years of corporate taxpayers beginning after December 31, 1975.” Ch. 904, Acts of 1976, § 5.

This, of course, required inclusion, for Maryland tax purposes, of dividend income included in federal taxable income. In 1977 the General Assembly revisited § 280A (c) by adding (via Ch. 812 of the Acts of that year) language calling for the subtraction from federal taxable income, to the extent included therein, “(4) any amounts included therein by operation of the provisions of § 78 of the Internal Revenue Code of 1954....” Section 78 is, of course, the gross-up provision, and the 1977 amendment effectively produced the result (at least from its effective date of 1 July 1977) for which NCR now contends. As NCR reads this history, the 1976 amendment was not directed to gross-up income; it was simply intended to make actual dividend income taxable in Maryland. In 1977 the legislature realized it had made a terrible mistake in the prior year and promptly addressed the gross-up problem by allowing subtraction for Maryland purposes of amounts included in federal income by virtue of § 78.

The legislative intent, under this theory, was never to tax gross-up income. Under somewhat similar circumstances, the Supreme Court of Vermont used a subsequent statutory amendment to decipher prior legislative intent in the manner for which NCR now contends. In re Knosher, 139 Vt. 285, 287-288 , 428 A.2d 1104, 1105 (1981). See also Winterset, Inc. v. Comm’r of Taxes, 144 Vt. 230, 232-234 , 475 A.2d 231, 232-233 (1984).

But we do not see the Maryland legislative history that way. When we construe a statute, we seek to ascertain and effectuate the legislative goal or object, and our first recourse in doing so is to the words of the statute, giving them their ordinary and natural import. Comptroller v. American Satellite Corp., 312 Md. at 544 , 540 A.2d at ¹²⁵ 1150. The plain words before us now in no way support NCR’s conclusion; to the contrary, they bolster the Comptroller’s position.

Nevertheless, a statute must be construed in context, and the plainest language may be governed by the context in which it appears. Kaczorowski v. City of Baltimore, 309 Md. 505, 514-516 , 525 A.2d 628, 632-633 (1987). Legislative reports and other pertinent legislative history may help to provide the appropriate context. Id.

Chapter 812, Acts of 1977, contains only the usual effective date provision—1 July 1977. Unlike the 1976 act, it contains no language carefully spelling out the tax year to which the amendment applies. Statutes are normally prospective in operation absent clear intent to the contrary. See Mason v. State, 309 Md. 215 , 219-220 & n. 1, 522 A.2d 1344 , 1346 & n. 1 (1987); WSSC v. Riverdale Fire Co., 308 Md. 556, 560-561 , 520 A.2d 1319, 1321-1322 (1987).

The lack of retrospective wording gives NCR’s “unintended consequence” argument a somewhat hollow ring. Surely had the General Assembly meant to correct an inadvertent error made in 1976, the 1977 law expressly would have applied to the 1976 tax year. That the legislature knew how to write this sort of language appears from the 1976 act itself. And given a filing date of 15 April 1977, for 1976 tax returns [see Md.Code (1975 Repl.Vol.), Art. 81, § 305], it seems particularly clear that a tax statute taking effect on 1 July 1977 was not designed to apply to the 1976 tax year.

Finally, it appears that when the 1976 bill was under consideration in the House Ways and Means Committee, an amendment to allow deduction of gross-up was rejected. See Letter of 5 November 1976 from William S. Ratchford, II, to Senator Roy N. Staten. While a committee’s rejection of an amendment is clearly not an infallible indication of legislative intent, it may help our understanding of overall legislative history. See Bd. of Examiners in Optometry v. Spitz, 300 Md. 466, 479-480 , 479 A.2d 363, 369-370 (1984); Demory Brothers v. Bd. of Pub.

Works, 273 Md. 320, 325-326 , 329 A.2d 674, 677 (1974); Bosely v. ¹²⁶ Dorsey, 191 Md. 229, 240 , 60 A.2d 691, 696 (1948); Cohen v. Goldstein, 58 Md.App. 699, 717 , 474 A.2d 229, 237-238 , cert. denied, 301 Md. 41 , 481 A.2d 801 (1984), espousing the proposition that legislative intent cannot be inferred solely from failure of a bill, but failure may be taken into account. But cf. Automobile Trade Ass’n v. Ins. Comm’r, 292 Md. 15, 24 , 437 A.2d 199, 203 (1981). The “General Assembly is presumed to have had, and acted with respect to, full knowledge and information as to prior and existing law and legislation on the subject of the statute____” Board of Educ., Garrett Co. v. Lendo, 295 Md. 55, 63 , 453 A.2d 1185, 1189 (1982).

With that in mind, and with all available legislative history before us, we conclude that § 280A, as applied in 1976, required the inclusion of gross-up in NCR’s taxable Maryland income for that year. The next question is whether the statute, so construed, is constitutional. It is to that topic that we now turn. B. Gross-up and Fourteenth Amendment Due Process Though conceding that the income derived from foreign subsidiaries is part of its unitary business, NCR argues that taxation of its gross-up income contravenes the due process clause of the fourteenth amendment to the United States Constitution. 2 This is so, NCR contends, because whether or not it was taxed on gross-up depended solely upon its treatment of foreign taxes paid—i.e., as a credit or deduction on its federal return.

Hence, NCR asserts that the “gross-up amount created by its ... foreign tax credit election bears no ‘rational relationship’ to its ‘interstate values’ in Maryland.” Brief at 15. “Under both the Due Process and Commerce Clauses of the Constitution, a State may not, when imposing an income-based tax, ‘tax value earned outside its borders.’ ” Container Corp. v. Franchise Tax Bd., 463 U.S. 159, 164 , 103 S.Ct. 2933, 2939 , 77 L.Ed.2d 545, 552 , reh’g denied, 464 ¹²⁷ U.S. 909, 104 S.Ct. 265 , 78 L.Ed.2d 248 (1983) (quoting ASARCO, Inc. v. Idaho State Tax Comm’n, 458 U.S. 307, 315 , 102 S.Ct. 3103, 3108 , 73 L.Ed.2d 787, 794 (1982)). Nonetheless, “[i]t has long been established that the income of a business operating in interstate commerce is not immune from fairly apportioned state taxation.” Mobil Oil Corp. v. Comm’r of Taxes, 445 U.S. 425, 436 , 100 S.Ct. 1223, 1231 , 63 L.Ed.2d 510, 520 (1980); also see Random House v. Comptroller, 310 Md. 696, 707 , 531 A.2d 683, 688 (1987); Xerox Corp. v. Comptroller, 290 Md. 126, 128 , 428 A.2d 1208, 1210 (1981). In order to challenge successfully State apportionment of corporate income, “the taxpayer [must] ... prove ‘by clear and cogent evidence’ that the income attributed to the State is in fact ‘out of all appropriate proportions to the business transacted ... in that State, ... or has led to a grossly distorted result____’” Container Corp., supra, 463 U.S. at 170 , 103 S.Ct. at 2942 , 77 L.Ed.2d at 556 (quoting Moorman Mfg. Co. v. Bair, 437 U.S. 267, 274 , 98 S.Ct. 2340, 2345 , 57 L.Ed.2d 197, 205 , reh’g denied, 439 U.S. 885 , 99 S.Ct. 233 , 58 L.Ed.2d 201 (1978)).

NCR’s argument that its gross-up meets this test relies principally on language extracted from F.W. Woolworth Co. v. Taxation and Revenue Dept., 458 U.S. 354, 372-373 , 102 S.Ct. 3128, 3139 , 73 L.Ed.2d 819, 833 , reh’g denied, 459 U.S. 961 , 103 S.Ct. 274 , 74 L.Ed.2d 213 (1982): We need not be detained by New Mexico’s reaching out to tax “gross-up” amounts that even the Supreme Court of New Mexico recognized as “fictitious.” ... The gross-up computation is a figure that the Federal Government “deems” Woolworth to have received for purposes of part of Woolworth’s federal foreign tax credit calculation____ In this case the foreign tax credit arose from the taxation by foreign nations of Woolworth foreign subsidiaries that had no unitary business relationship with New Mexico. New Mexico’s effort to tax this income “deemed received”—with respect to which New Mexico contributed ¹²⁸ nothing—also must be held to contravene the Due Process Clause. Id. [citations omitted].

But the reason the Supreme Court of the United States did not need to be detained by New Mexico’s efforts to tax Woolworth’s gross-up was not because, in that Court’s view, State taxation of gross-up was unconstitutional per se. It was because a state canñot tax gross-up dividends, any more than it can tax actual dividends, when the foreign subsidiaries have no unitary business relationship with the state. Since the principle undergirding the holding in Woolworth was the absence of a unitary business relationship, the Court was not required to address the due process argument Woolworth directed at New Mexico’s inclusion of gross-up. Woolworth is of no comfort to NCR; the unitary nature of NCR’s business is conceded here.

There are, of course, gross-up cases (or cases involving analogous principles) in which state courts have reached results favorable to the taxpayer by excluding gross-up (or other “income” includible in federal taxable income) from income subject to state taxation. See Dow Chemical Co. v. Comm’r of Revenue, 378 Mass. 254 , 391 N.E.2d 253 (1979); Commonwealth v. Emhart Corp., 443 Pa. 397 , 278 A.2d 916 , appeal dismissed, 404 U.S. 981 , 92 S.Ct. 451 , 30 L.Ed.2d 364 (1971); In re Knosher, supra. There are also similar cases that hold in favor of the taxing authorities. See Ex parte Kimberly-Clark Corp., 503 So.2d 304 (Ala.1987); Caterpillar Tractor Co. v. Lenckos, 84 Ill.2d 102 , 49 Ill.Dec. 329 , 417 N.E.2d 1343 (1981), appeal dismissed sub nom.

Chicago, Bridge & Iron Co. v. Caterpillar Tractor Co., 463 U.S. 1220 , 103 S.Ct. 3562 , 77 L.Ed.2d 1402 (1983); Albany Int'l Corp. v. Halperin, 388 A.2d 902 (Me.1978); Commonwealth v. Westinghouse, 478 Pa. 164 , 386 A.2d 491 , appeal dismissed, 439 U.S. 805 , 99 S.Ct. 61 , 58 L.Ed.2d 97 (1978). But the outcome in each of these cases turns bn the specific provisions of a state statute, or on a reading of legislative intent in light of a particular legislative history or a given state’s general approach to statutory interpreta ¹²⁹ tion. None addresses the fourteenth amendment issue that is now before us. One decision that does touch on that issue is Taxation & Revenue Dept. v. F.W. Woolworth, 95 N.M. 519 , 624 P.2d 28 (1981), rev’d on other grounds, 458 U.S. 854 , 102 S.Ct. 3128 , 73 L.Ed.2d 819 , reh’g denied, 459 U.S. 961 , 103 S.Ct. 274 , 74 L.Ed.2d 218 (1982).

As is obvious from the citation (and as NCR points out), this decision was reversed by the United States Supreme Court. But as we have just observed, that reversal had nothing to do with any conclusion that a state would violate the due process clause of the fourteenth amendment if it taxed gross-up. The Supreme Court did not deal with that issue. The Supreme Court of New Mexico did at least touch on it, and seemed to find no constitutional impediment because Woolworth had received measurable economic benefit from its election to use the federal tax credit as opposed to a federal deduction for foreign taxes paid.

Id. at 522-523 , 624 P.2d at 31-32 . And the Supreme Court of North Dakota has very recently reached the same conclusion. International Minerals & Chem. Corp. v. Heitkamp, 417 N.W.2d 791 (N.D.1987).

In Heitkamp , International Minerals & Chemical Corp. (IMC), a unitary business operating both within and without North Dakota and which owned a number of foreign subsidiaries, took the federal “deemed paid” credit. As in Maryland federal taxable income served as a tax base for state taxable income, but IMC tried to exclude the gross-up amount from its taxable North Dakota income. It made essentially the same constitutional argument that NCR submits to us. Observing, as we have, that the Supreme Court’s Woolworth did not address the issue, the North Dakota court reasoned: A domestic corporation required to compute “gross-up” income under [26 U.S.C.] § 78 has received economic benefit from its election to take the § 902 foreign tax credit.

By making this voluntary election, IMC has reduced its federal income tax liability____ ¹³⁰ In this case, it is conceded that IMC’s foreign subsidiaries had a unitary business relationship with IMC and North Dakota. Therefore, the due process clause does not preclude North Dakota from taxing actual dividends IMC received from its foreign subsidiaries____ Having elected the benefit of the § 902 “deemed paid” foreign tax credit, IMC in effect chose not to deduct the foreign taxes paid by its foreign subsidiaries but to instead treat them as “dividends” and therefore “gross income” for purposes of the Internal Revenue Code.[ 3 ] We do not believe due process requires that IMC be freed from this choice for state tax purposes____ Because North Dakota does not statutorily recognize a deduction for § 78 “gross-up” income, IMC may not exclude the “gross-up” from the amount of federal taxable income reported on its state income tax return. Id. at 796 [citations omitted]. Heitkamp is on all fours with the case before us.

We agree with the Supreme Court of North Dakota’s reasoning, and for the same reasons, hold that the due process clause of the fourteenth amendment does not preclude Maryland from taxing NCR’s “gross-up” income for tax year 1976.

II

NCR’s Domestic Placement Income During the years 1976 and 1977, NCR received income generated from various short-term investments totalling $17,856,121 and $22,138,461, respectively. Of that income, NCR concedes, amounts of $6,440,986 in 1976 and $4,044,-691 in 1977 were from unitary business sources such as finance charges and loans and advances to subsidiaries and ¹³¹ agents, and thus were properly subject to Maryland’s apportionment tax. But the remainder of that interest income— $11,415,135 in 1976 and $18,093,770 in 1977—was derived from other sources. NCR refers to this other-source income as “domestic placement income” (DPI).

The sources of the DPI, it asserts, were nonunitary. If NCR is correct in this assertion, the DPI was not subject to apportionment in Maryland. The “ ‘linchpin of apportionability’ for state income taxation of an interstate enterprise is the unitary business principle.” F.W. Woolworth Co. v. Taxation and Revenue Dept., 458 U.S. at 362, 102 S.Ct. at 3134 , 73 L.Ed.2d at 826 (quoting ASARCO, Inc. v. Idaho State Tax Comm’r, 458 U.S. at 319, 102 S.Ct. at 3110, 73 L.Ed.2d at 796); Container Corp., supra, contains a precise description of the unitary business formula as it has been applied: The unitary business/formula apportionment method is a very different approach to the problem of taxing businesses operating in more than one jurisdiction. It rejects geographical or transactional accounting, and instead calculates the local tax base by first defining the scope of the “unitary business” of which the taxed enterprise’s activities in the taxing jurisdiction form one part, and then apportioning the total income of that “unitary business” between the taxing jurisdiction and the rest of the world on the basis of a formula taking into account objective measures of the corporation’s activities within and without the jurisdiction.

This Court long ago upheld the constitutionality of the unitary business/formula apportionment method, although subject to certain constraints. Container Corp., 463 U.S. at 165 , 103 S.Ct. at 2940 , 77 L.Ed.2d at 553 . Apportionment under the unitary business formula, however, is not without its restrictions. The due process and commerce clauses do not allow states to tax a corporation’s interstate activities unless there exists a “ ‘minimal connection’ or ‘nexus’ between the interstate activities and ¹³² the taxing State, and ‘a rational relationship between the income attributed to the State and the intrastate values of the enterprise.’ ” Exxon Corp. v. Wisconsin Dept. of Revenue, 447 U.S. 207, 219-220 , 100 S.Ct. 2109, 2118 , 65 L.Ed.2d 66, 79 (1980) (quoting Mobil Oil Corp. v. Comm’r of Taxes, supra, 445 U.S. at 436-437 , 100 S.Ct. at 1231, 63 L.Ed.2d at 520 ).

In Xerox Corp. v. Comptroller, supra, Chief Judge Murphy discussed for the Court the two parts of the due process test: The first of the two parts of the due process test—the existence of a “minimal connection” or “nexus”—concerns a State’s jurisdiction to tax a business’s income. The second part of the test—whether there is a rational relationship between the taxing State and the intrastate values of the taxpayer’s enterprise—deals with constitutional limits on the application of a particular apportionment formula. Xerox, 290 Md. at 145 , 428 A.2d at 1218-1219 . Prong one of the test is satisfied by demonstrating the existence of unitary business, part of which is carried on in the taxing state.

Hellerstein, “State Income Taxation of Multijurisdictional Corporations, Part II: Reflections on ASARCO and Woolworth,” 81 Mich.L.Rev. 157, 168 (1982) (hereinafter “State Income Taxation”). Once the requisite nexus has been shown, the taxpayer then bears the burden of demonstrating that the income it seeks to exclude from taxation was derived from unrelated business activity that constituted a discreet business enterprise. See Container Corp., supra, 463 U.S. at 164, 103 S.Ct. at 2939-2940 , 77 L.Ed.2d at 552 ; Exxon Corp, supra, 447 U.S. at 223-224 , 100 S.Ct. at 2120 , 65 L.Ed.2d at 81 ; Mobil Oil, supra, 445 U.S. at 442 , 100 S.Ct. at 1234 , 63 L.Ed.2d at 524 . NCR does not dispute the fact that it maintained several offices in this State.

The nexus between it and Maryland was sufficient for imposition of the State income tax. Rather, NCR’s contention is that its DPI was derived from sources that were not part of its unitary business and thus the DPI ¹³³ should not have been apportioned to Maryland. To test this contention, we turn initially to what the Tax Court had to say about the DPI. The Tax Court observed that NCR “receives ... [DPI] from short term interest bearing instruments, primarily certificates of deposit, backers of acceptances, commercial paper, government notes and municipal bonds.” The agency accepted NCR’s claim that “the banks, government agencies, and other organizations which issue these short term interest bearing instruments are not part of the unitary business of NCR.” It then concluded that since “NCR has shown that the short term investments involved were not part of its unitary operations, i.e., the production and sale of business machines ... apportionment of this interest income ... would violate the due process clause because this income does not represent profits derived from the functionally integrated unitary business of NCR operating in Maryland.” The circuit court agreed with this analysis, but the Court of Special Appeals rejected it, holding that the Tax Court (and the circuit court) had applied an incorrect legal standard.

Comptroller v. NCR Corp., 71 Md.App. at 133 , 524 A.2d at 101 . We agree with the Court of Special Appeals. NCR assails the Court of Special Appeals for what the taxpayer perceives as that court’s failure to give proper deference to the Tax Court’s findings, as required by the emphatic teaching of Ramsay, Scarlett & Co. v. Comptroller, 302 Md. 825 , 490 A.2d 1296 (1985). The Court of Special Appeals understood and accepted that teaching.

Judge Bishop, writing for the intermediate appellate court, pointed out: As we explained in section II [of the opinion], a tax court receives considerable deference regarding its factual and law to fact determinations. A reviewing court may not disturb findings of fact if they are supported by substantial evidence in the record. Ramsay, Scarlett, 302 Md. at 834 , 490 A.2d 1296 ____ Similarly, determinations involving mixed questions of fact and law must be ¹³⁴ affirmed if, after deferring to the Tax Court’s expertise and to the presumption that the decision is correct, “a reasoning mind could have reached the Tax Court’s conclusion.” ... [A]ccord Ramsay, Scarlett, 302 Md. at 838 , 490 A.2d 1296 . Comptroller v. NCR, 71 Md.App. at 133 , 524 A.2d at 101 [other citation omitted].

But as the Court of Special Appeals also recognized, if the Tax Court’s legal conclusions are wrong, a reviewing court may “substitute the correct legal principles. Ramsay, Scarlett, 302 Md. at 834 , 490 A.2d 1296 ____” Id. See also Washington Nat’l Arena v. Comptroller, 308 Md. 370, 378-380 , 519 A.2d 1277, 1281-1282 (1987). We now explain why the Tax Court (and the circuit court) erred as a matter of law.

Factually, the Tax Court was unassailably correct in finding that “the banks, government agencies, and other organizations” that produced the DPI “are not part of the unitary business of NCR.” But legally, the Tax Court was wrong in concluding that the interest payers had to be a part of NCR’s business for apportionment to apply. If that legal standard is correct, then Maryland could not apportion the income derived by NCR from the sale of a cash register to any out-of-state supermarket unaffiliated with NCR, for the supermarket also would not be part of NCR’s unitary business. In other words, the focus of the inquiry is on the relationship of the activity in question with the unitary business, not on the identity of the business payer. Xerox, 290 Md. at 144 , 428 A.2d at 1218 .

The Tax Court derived its legal standard from dicta in Mobil, supra. In that case the Supreme Court affirmed the apportionability by Vermont of dividend income from Mobil’s foreign subsidiaries and affiliates. The Court cautioned, however, that not all dividend income of an interstate unitary business is necessarily taxable. “Where the business activities of the dividend payor have nothing to do with the activities of the recipient in the taxing State, due process considerations might well preclude apportionability, ¹³⁵ because there would be no underlying unitary business.” 445 U.S. at 442 , 100 S.Ct. at 1234, 63 L.Ed.2d at 523-524 . This view was applied in ASARCO, supra.

ASARCO’s general unitary business was the mining, smelting, and refining of nonferrous metals in various states. Its specific activities in Idaho (the taxing state) had to do with silver mining. The income Idaho sought to apportion consisted chiefly of dividends and interest from certain foreign and domestic subsidiaries. The Supreme Court accepted Idaho’s own fact-finding which showed that the degree of control ASARCO exercised over the subsidiaries was insufficient to bring them within ASARCO’s unitary business.

Under these circumstances, the Court rejected Idaho’s argument that “corporate purpose should define unitary business ... [and that] intangible income should be considered a part of a unitary business if the intangible property ... is ‘acquired, managed or disposed of for purposes relating or contributing to the taxpayer’s business.’ ” 458 U.S. at 326, 102 S.Ct. at 3114, 73 L.Ed.2d at 801 (quoting from Idaho’s brief) [emphasis in original]. In so doing the Court reasoned that [Idaho’s] definition of unitary business would destroy the concept. The business of a corporation requires that it earn money to continue operations and to provide a return on its invested capital. Consequently all of its operations, including any investment made, in some sense can be said to be “for purposes related to or contributing to the [corporation’s] business.” When pressed to its logical limit, this conception of the “unitary business” limitation becomes no limitation at all.

Id. (quoting from Idaho’s brief) [emphasis in original]. What is important about ASARCO is its factual foundation. The subsidiaries in question there were discrete business enterprises, that is, they had no connection whatsoever with ASARCO’s Idaho activities.

The interest payers here involved were also not part of NCR’s business machine ¹³⁶ enterprise, nor were they controlled by NCR. But to paraphrase Mobil, only if “the income was earned in the course of activities unrelated to [NCR’s unitary activities in Maryland]” would Maryland be prevented from taxing it. Mobil, 445 U.S. at 439 , 100 S.Ct. at 1232 , 63 L.Ed.2d at 522 , quoted in ASARCO, 458 U.S. at 317 , 102 S.Ct. at 3109 , 73 L.Ed.2d at 795 . Several cases illustrate approaches other states have taken to the problem.

In Champion Int’l Corp. v. Bureau of Revenue, 88 N.M. 411 , 540 P.2d 1300 (App.1975), Champion International challenged tax assessments by New Mexico’s Commissioner of Revenue on “short-term investments and highly liquid assets from which interest income was derived.” Id. at 414 , 540 P.2d at 1303 . This income was used when “needed for future business activity.” Id. The court found that “a normal and customary practice by Champion was to invest excess capital, not needed for business purposes, in short-term securities [and that] ... this was a specific function done in the regular course of Champion’s business.” Id. at 414 , 540 P.2d at 1303 . Consequently, it concluded that the interest income was “business income” within the meaning of N.M.Stat.Ann. § 72-15A-17(A) (Repl.Vol. 10, pt. 2, 1973 Supp.).

As to Champion’s constitutional claims, the court said The Commissioner’s decision does not tax out-of-state activity. Neither does the tax statute. The taxation is not beyond the state’s taxing authority. Champion’s claim of unconstitutionality based on taxation of out-of-state activity, and its claim that the imposition of the tax is beyond the taxing authority of New Mexico, are both groundless. 88 N.M. at 417 , 540 P.2d at 1306 .

Of like tenor is Atlantic Ritchfield Co. v. State, 198 Colo. 413 , 601 P.2d 628 (1979). Atlantic Ritchfield concerned Colorado’s authority to tax interest income and capital gains ¹³⁷ derived from the sale of certain of Atlantic Ritchfield’s corporate assets, located outside of Colorado. The Court engaged in a lengthy discussion of whether the interest and capital gains were “business income” within the context of Colo.Rev.Stat. § 24-60-1301, Art. IV(l)(a) (1973). Noting that “[historically, Ritchfield, as part of its business operations, has regularly engaged in major acquisitions and dispositions of the same type involved here, [and that] ... [s]uch acquisitions and dispositions of assets constitute a systematic and recurrent business practice,” the court concluded the capital gains and interest constituted “business income.” 198 Colo, at 418, 601 P.2d at 632 .

The court summarily dismissed Atlantic Ritchfield’s due process claim concluding that “the apportionment formula is reasonably related to Ritchfield’s business activities in Colorado and, therefore, is constitutional.” Id. In Qualls v. Montgomery Ward & Co., Inc., 266 Ark. 207 , 585 S.W.2d 18 (1979), the Supreme Court of Arkansas upheld state taxation of Montgomery Ward’s interest income derived from loans and advances to out-of-state corporate relatives which were not part of its unitary business. In addressing Montgomery Ward’s due process challenge, the court reasoned that Income earned in Arkansas went into Ward’s working capital. In the regular course of Ward’s business, loans and advances to related corporations earned interest which also went into working capital, a part of which was used to carry on operations in Arkansas.

The interest goes into a fund that will be used, in part, in Arkansas, and the supplies and services received from the borrowers contribute to the conduct of Ward’s business in Arkansas. These facts provide the necessary nexus, not to justify taxation of the total amount of this interest income, but to justify taxing that portion attributable to Arkansas under the three-factor apportionment formula. ¹³⁸ Id. at 230 , 585 S.W.2d at 30 . 4 These cases, of course, all were decided before Mobil, Exxon, and ASARCO. But similar results were reached in two Tpost-ASARCO cases involving facts like the ones before us. In Lone Star Steel Co. v. Dolan, 668 P.2d 916 (Colo.1983), the Supreme Court of Colorado upheld a state tax on Lone Star’s interest income derived from short-term loans made to its out-of-state parent.

Lone Star had argued that “under ASARCO the interest paid by [its parent was] ... not apportionable because [the parent was] ... not engaged in a unitary business with [it]____” Id. at 924 . The court, citing Justice O’Connor’s dissent in ASARCO ( 458 U.S. at 337 , 102 S.Ct. at 3120 , 73 L.Ed.2d at 808) and the majority’s response in note 21 of that case (id. at 324 n. 21, 102 S.Ct. at 3113 n. 21, 73 L.Ed.2d at 800 n. 21), concluded that ASARCO was not controlling. 668 P.2d at 925 . The Colorado court distinguished ASARCO thus: ASARCO could legitimately be viewed as engaging in two businesses: nonferrous metal mining and “discrete business enterprises.” Because the Court concluded that these two functions were not the same unitary business, it held the dividends and interest to be nontaxable in Idaho. It cannot reasonably be said, however, that Lone Star is engaged in two separate businesses—the integrated steel business and the short-term lending business.

Instead, it is engaged in only one business—the integrated steel business—and it lends money to its parent in furtherance of the goals, and to aid the operations, of its unitary business. * * # * * * ¹³⁹