Container Corporation of America v. Franchise Tax Board

The Container Corporation of America (Container) (plaintiff), a Delaware corporation headquartered in Illinois, manufactured custom paperboard packaging. Container did business in California and controlled several foreign subsidiaries. Container held or guaranteed half of the long-term debt owned by its subsidiaries, provided advice and consultation to the subsidiaries, and sold used equipment to the subsidiaries. Otherwise, the subsidiaries were largely independent of Container, managing their own day-to-day activities. California imposed a corporate franchise tax on the income of companies that did business in the state. Container paid the franchise tax on its own income but not on the income of its subsidiaries. In 1969 the California Franchise Tax Board (the board) (defendant) assessed tax deficiencies against Container, arguing that Container owed franchise taxes on the income of its subsidiaries under the unitary-business principle. Container paid the assessed deficiencies and filed a lawsuit in state court seeking a refund and arguing that the board’s application of the franchise tax violated the Due Process Clause of the Fourteenth Amendment and the Commerce Clause of the United States Constitution. The superior court upheld the board’s assessments. The court of appeal affirmed the superior court, and the California Supreme Court refused to review the case. The United States Supreme Court granted certiorari.