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Unitary Business Taxation Principles

By Anthony Michael Sabino

For at least the last two decades, law firms have continually expanded their operations across state lines (and national boundaries as well). Even with the current downturn, this trend may slow down, but it most certainly will not abate. Thus, much like any other multistate enterprise, today's law firms have to confront the intriguing and difficult questions of the power of the several states to tax operations that extend across state lines. The controversy is magnified because these are no mere issues of rates and calculations; rather, they take on great significance because they raise constitutional questions. See Sabino, “For Whom The South Central Bell Tolls,” 189 Journal of Accountancy 73 (January 2000) (Alabama's uneven taxation of an out-of-state enterprise violated Commerce Clause of the U.S. Constitution).

The U.S. Supreme Court recently added another crucial landmark on this constitutional quagmire, in the aspect of the “unitary business” taxation of a multistate enterprise. To be sure, this is only the newest in a long line of cases on the subject, but as such it makes fertile ground for discussion. With that in mind, let us turn to what the High Court now instructs us.

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