Exxon Corporation v. Wisconsin Department of Revenue

Exxon Corporation (plaintiff) was a petroleum company incorporated in Delaware with its main offices in Texas. Exxon divided its corporate organization into three levels. The third level, operations management, oversaw three functional departments: exploration and production, refining, and marketing. The three departments were treated as separate by Exxon for accounting purposes. Exxon filed income- and franchise-tax returns in Wisconsin. Because Exxon’s only activity in Wisconsin was marketing, Exxon limited its Wisconsin tax returns to its marketing operation in Wisconsin. The Wisconsin Department of Revenue (the revenue department) (defendant) audited Exxon and determined that Exxon was liable for income and franchise taxes on all its income, not just its marketing income. The revenue department applied Wisconsin’s apportionment formula to Exxon’s total income, comprising the income of the three functional departments, to calculate Exxon’s tax deficiencies. Exxon contested the revenue department’s calculations, arguing that the Due Process Clause of the Fourteenth Amendment prevented the revenue department from applying Wisconsin’s tax to all three functional departments because Exxon performed only marketing in the state. The Wisconsin Supreme Court held that the three functional departments of Exxon’s operations-management business constituted a unitary business because Exxon’s production and refinement departments relied on the marketing department to find customers for their products. The court concluded that because Exxon operated a unitary business, all its income was subject to apportionment for Wisconsin income- and franchise-tax purposes. The United States Supreme Court granted certiorari.