## Facts

- Exxon Corporation was a vertically integrated petroleum company conducting exploration/production, refining, and marketing in multiple states under centralized management.
- Exxon had no exploration/production or refining operations in Wisconsin; its only Wisconsin activity was marketing petroleum products.
- Exxon filed Wisconsin corporate tax returns using separate geographical accounting limited to Wisconsin marketing operations, reporting losses and no tax due.
- Wisconsin audited and rejected Exxon's separate accounting, instead applying the state’s statutory formulary apportionment to Exxon’s total corporate income and assessing additional tax.
- The Wisconsin Supreme Court found Exxon’s in-state marketing and out-of-state production/refining to be parts of a single unitary business and upheld apportionment of income, including income associated with crude oil produced outside Wisconsin and transferred within Exxon’s integrated operations.

## Issues

1. Whether the Due Process Clause bars Wisconsin from applying a formulary apportionment method to Exxon’s total corporate income when Exxon’s in-state activity was limited to marketing.
2. Whether apportioning income that includes out-of-state production and refining income impermissibly burdens interstate commerce in violation of the Commerce Clause.

## Decision

- The Supreme Court affirmed the Wisconsin Supreme Court.
- Due Process was satisfied because Exxon had a sufficient nexus with Wisconsin through its marketing operations and the apportionment had a rational relationship to Exxon’s in-state business activity.
- The Commerce Clause was not violated because the tax, as applied through a formulary apportionment method, was not shown to be unfair, discriminatory, or an impermissible burden on interstate commerce.

## Legal Principles

- A state may tax an apportioned share of a multistate corporation’s income if there is (1) a minimal connection between the taxpayer and the state and (2) a rational relationship between the income attributed to the state and the in-state values of the enterprise.
- When a corporation’s in-state and out-of-state activities constitute a unitary business, the state may treat the enterprise’s total income as the tax base measure and use formulary apportionment to assign a share to the state.
- A taxpayer’s internal separate accounting, even if it segregates functional income streams, is not constitutionally controlling when the state reasonably treats the enterprise as unitary; the constitutional question turns on nexus and fair apportionment, not bookkeeping.
- A formulary apportionment tax on a unitary multistate business does not violate the Commerce Clause absent a showing that the formula operates unfairly, discriminates against interstate commerce, or otherwise creates an impermissible burden.

## Conclusion

The Court held that Wisconsin could apply its statutory formulary apportionment to Exxon’s total income because Exxon conducted a unitary integrated petroleum business with sufficient in-state activity, and Exxon’s separate accounting did not negate due process nexus or establish an unconstitutional burden on interstate commerce.


Exxon Corp. v. Wis. Dep’t of Revenue, 447 U.S. 207 (1980)