Supreme Court limits out-of-state taxes

A new ruling from the U.S. Supreme Court is good tax news for companies that operate in multiple states. The case involved a packaging company that was based in Ohio and did business in Illinois. The company had a separate Ohio-based subsidiary with an unrelated information-technology business. When the company sold the subsidiary, it had a significant capital gain.

Illinois wanted to impose a tax on a part of the capital gain. It said it should be able to do so because the parent company did business in Illinois, and the subsidiary was part of its operations. But the Supreme Court unanimously sided with the company. It said the subsidiary was a separate entity that was unconnected with the larger packaging business. The subsidiary had its own separate management, was not functionally integrated with the parent business, and provided no economies of scale. Therefore, Illinois had no right to tax it.

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