The Supreme Court has issued unanimous rulings in two tax cases, MeadWestvaco Corp. v. Illinois Department of Revenue and U.S. v. Clintwood Elkhorn Mining Co.In the MeadWestvaco case, the Supreme Court vacated and remanded the decision of the Illinois Appellate Court, which had allowed Illinois to tax a capital gain realized by Mead, an Ohio-based subsidiary of MeadWestvaco, when Mead sold its LexisNexis business division. Mead paid the tax and later sued in state court.
The trial court found that Lexis and Mead were not unitary because they were not functionally integrated or centrally managed and enjoyed no economies of scale. It nevertheless concluded that Illinois could tax an apportioned share of Mead’s capital gain, because Lexis served an operational purpose in Mead’s business. The State Appellate Court in affirming found that Lexis served an operational function in Mead’s business and thus did not address whether Mead and Lexis formed a unitary business.
Justice Samuel Alito wrote in his opinion that the state courts erred in considering whether Lexis served an “operational purpose” in Mead’s business after determining that Lexis and Mead were not unitary.
The case was remanded for further proceedings consistent with the opinion.
In the Clintwood Elkhorn Mining case, the court found that taxpayers need to file for refunds of taxes that have been unlawfully assessed within the proper time periods.
“The Internal Revenue Code provides that taxpayers seeking a refund of taxes unlawfully assessed must comply with tax refund procedures set forth in the code,” wrote Chief Justice John Roberts. “Under those procedures, a taxpayer must file an administrative claim with the Internal Revenue Service before filing suit against the government. Such a claim must be filed within three years of the filing of a return or two years of payment of the tax, whichever is later. The Tucker Act, in contrast, is more forgiving, allowing claims to be brought against the United States within six years of the challenged conduct. The question in this case is whether a taxpayer suing for a refund of taxes collected in violation of the Export Clause of the Constitution may proceed under the Tucker Act, when his suit does not meet the time limits for refund actions in the Internal Revenue Code. The answer is no.”
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