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90-1918.ZS
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NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
being done in connection with this case, at the time the opinion is issued.
The syllabus constitutes no part of the opinion of the Court but has been
prepared by the Reporter of Decisions for the convenience of the reader.
See United States v. Detroit Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
KRAFT GENERAL FOODS, INC. v. IOWA DEPART-
MENT OF REVENUE AND FINANCE
certiorari to the supreme court of iowa
No. 90-1918. Argued April 22, 1992-Decided June 18, 1992
The Iowa statute that imposes a business tax on corporations uses the
federal tax code's definition of ``net income'' with certain adjustments.
Like the federal scheme, Iowa allows corporations to take a deduction
for dividends received from domestic, but not foreign, subsidiaries.
However, unlike the federal scheme, Iowa does not allow a credit for
taxes paid to foreign countries. Petitioner Kraft General Foods, Inc.,
a unitary business with operations in the United States and several
foreign countries, deducted its foreign subsidiary dividends from its
taxable income on its 1981 Iowa return, notwithstanding the contrary
provisions of Iowa law. Respondent Iowa Department of Revenue
and Finance (Iowa) assessed a deficiency, which Kraft challenged in
administrative proceedings and subsequently in Iowa courts. The
Iowa Supreme Court rejected Kraft's argument that the disparate
treatment of domestic and foreign subsidiary dividends violated the
Commerce Clause of the Federal Constitution, holding that Kraft
failed to demonstrate that the taxing scheme gave Iowa businesses
a commercial advantage over foreign commerce.
Held:The Iowa statute facially discriminates against foreign commerce
in violation of the Foreign Commerce Clause. It is indisputable that
the statute treats dividends received from foreign subsidiaries less
favorably than those received from domestic subsidiaries by including
the former, but not the latter, in taxable income. None of the several
arguments made by Iowa and its amici-that, since a corporation's
domicile does not necessarily establish that it is engaged in either
foreign or domestic commerce, the disparate treatment is not discrim-
ination based on the business activity's location or nature; that a
taxpayer can avoid the discrimination by changing a subsidiary's
domicile from a foreign to a domestic location; that the statute does
not treat Iowa subsidiaries more favorably than those located else-
where; that the benefit to domestic subsidiaries might be offset by
the taxes imposed on them by other States and the Federal Govern-
ment; and that the statute is intended to promote administrative
convenience rather than economic protectionism-justifies Iowa's
differential treatment of foreign commerce. Pp.4-11.
465 N.W.2d 664, reversed and remanded.
Stevens, J., delivered the opinion of the Court, in which White,
O'Connor, Scalia, Kennedy, Souter, and Thomas, JJ., joined.
Rehnquist, C. J., filed a dissenting opinion, in which Blackmun, J.,
joined.