Kraft General Foods, Inc. v. Iowa Department of Revenue and Finance (505 U.S. 71)
U.S. Supreme Court · decided June 18, 1992 · Supreme Court Database (Spaeth)
- Citation
- 505 U.S. 71 · 112 S. Ct. 2365
- Decided
- June 18, 1992
- Term
- October Term 1991
- Vote
- 7–2
- Majority author
- Justice Stevens
- Issue area
- Economic Activity
- Disposition
- Reversed and remanded
- Outcome
- Petitioning party won
- Ideological direction
- Conservative
- Constitutional ruling
- State/territorial law held unconstitutional
Opinion excerpt
Justice Stevens delivered the opinion of the Court. In 1981 petitioner Kraft General Foods, Inc. (Kraft), operated a unitary business throughout the United States and in several foreign countries. Because part of its business was conducted in Iowa, Kraft was subject to the Iowa Business Tax on Corporations. At issue in this case is Iowa’s inclusion in the tax base of the dividends that Kraft received from six subsidiaries, each of which was incorporated and conducted its business in a foreign country. While Iowa taxes the dividends that a corporation receives from its foreign subsidiaries, Iowa does not tax dividends received from domestic subsidiaries. The question presented is whether the disparate treatment of dividends from foreign and from domestic subsidiaries violates the Foreign Commerce Clause. I The Iowa statute uses the federal definition of “net income” with certain adjustments. For federal tax purposes, corporations are generally allowed a deduction for dividends received from domestic subsidiaries. As the earnings of the domestic subsidiaries, themselves, are subject to federal taxation, this deduction avoids a second federal tax on those earnings. The Federal Government generally does not tax the earnings of foreign subsidiaries, and the dividends paid by foreign subsidiaries are not deductible. The parent corporation, however, does receive a credit for the…
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