Westinghouse Electric Corp. v. Tully, 55 N.Y.2d 364 (1982)

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A state’s taxation of a corporation’s income, including income derived from a Domestic International Sales Corporation (DISC), does not violate the Commerce Clause or Due Process Clause if the tax is fairly apportioned and does not discriminate against interstate or foreign commerce, and if the state has a sufficient nexus with the unitary business.

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Summary

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Westinghouse challenged New York’s corporate franchise tax, arguing that including the accumulated income of its DISC subsidiary in its “entire net income” violated the Commerce Clause and Due Process Clause. The New York Court of Appeals held that the state’s tax scheme was constitutional. The court reasoned that Congress did not preempt state taxation of DISC income and that New York’s apportionment formula ensured the tax was fairly related to the corporation’s activity within the state. The court also found that the state’s tax credit for export shipments did not discriminate against interstate commerce.

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Facts

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Westinghouse Electric Corporation, a Pennsylvania corporation doing business in New York, had a wholly-owned DISC subsidiary, Westinghouse Electric Export Corporation. The DISC’s income came from commissions earned as an export agent for Westinghouse and its affiliates. The DISC had no physical presence or business activity in New York. When filing its New York franchise tax returns for 1972 and 1973, Westinghouse included its “deemed distributions” from the DISC in its “entire net income” but did not include any portion of the “accumulated” DISC income. The New York Department of Taxation and Finance assessed a deficiency, arguing that Westinghouse should have consolidated its DISC’s receipts, expenses, assets, and liabilities with its own when computing its “entire net income.”