Mobil Oil Corporation v. Commissioner of Taxes of Vermont

Mobil Oil Corporation (Mobil) (plaintiff) was a New York corporation that produced and sold petroleum products. Mobil owned several subsidiary companies that were incorporated in foreign countries. Because Mobil had a marketing operation in Vermont, it was required to pay Vermont income tax on the portion of its income attributable to Vermont. To determine a company’s state tax liability, Vermont applied a three-factor apportionment formula to the company’s net income. Mobil’s net income included income received in the form of dividends from its foreign subsidiaries. On its Vermont income-tax returns, Mobil classified the foreign dividend income as nonapportionable and left that income out of its net income. The Vermont Department of Taxes (the department) determined that the foreign dividend income was apportionable and assessed a deficiency against Mobil for unpaid taxes for the years 1970 to 1972. Mobil challenged the assessment, arguing that taxation of the foreign dividend income violated the Due Process Clause of the Fourteenth Amendment and the Commerce Clause of the United States Constitution. The commissioner of taxes of Vermont (defendant) upheld the department’s assessment. Mobil sought review in state court. The superior court reversed the commissioner’s determination, holding that Vermont could not tax Mobil’s foreign dividend income. The superior court reasoned that New York, Mobil’s domicile, could tax the entirety of the foreign dividend income, and therefore, it would be unconstitutional for Vermont to also tax the dividends. The Vermont Supreme Court reversed the superior court, holding that Mobil’s foreign dividend income was sufficiently connected to Vermont to allow Vermont to apportion the income. The Vermont Supreme Court also believed that multiple taxation of the income was unlikely, as New York had not previously taxed the dividend income. The United States Supreme Court granted certiorari.