Slip opinion

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 pre-
pared 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

ALLIED-SIGNAL, INC., AS SUCCESSOR-IN-
        INTEREST TO THE BENDIX CORP. v.
         DIRECTOR, DIVISON OF TAXATION
 certiorari to the supreme court of new jersey
No. 91-615.  Argued March 4, 1992"Reargued April
              22, 1992"
        Decided June 15, 1992

In order for a State to tax the multistate income
of a nondomiciliary corporation, there must be,
inter alia, a minimal connection between the
interstate activities and the taxing State,
Mobil Oil Corp. v. Commissioner of Taxes of Vt.,
445 U.S. 425, 436-437, and a rational relation
between the income attributed to the taxing
State and the intrastate value of the corpo-
rate business, id., at 437.  Rather than isolat-
ing the intrastate income-producing activities
from the rest of the business, a State may tax
a corporation on an apportioned sum of the
corporation's multistate business if the busi-
ness is unitary.  E. g., ASARCO Inc. v. Idaho
State Tax Comm'n, 458 U.S. 307, 317.  However a
State may not tax the nondomiciliary corporati-
on's income if it is derived from unrelated busi-
ness activity which constitutes a discrete
business enterprise.  Exxon Corp. v.  Wisconsin
Dept. of Revenue, 447 U.S. 207, 224.  Petitioner
is the successor-in-interest to the Bendix
Corporation, a Delaware corporation.  In the
late 1970's Bendix acquired 20.6% of the stock
of ASARCO Inc., a New Jersey corporation, and
resold it to ASARCO in 1981, generating a $211.5
gain.  After respondent New Jersey tax official
assessed Bendix for taxes on an apportioned
amount which included in the base the gain real-
ized from the stock disposition, Bendix sued for
a refund in State Tax Court.  The parties stipu-
lated that during the period that Bendix held
its investment, it and ASARCO were unrelated
business enterprises each of whose activities
had nothing to do with the other, and that,
although Bendix held two seats on ASARCO's
board, it exerted no control over ASARCO.
Based on this record, the court held that the
assessment was proper, and the Appellate Divi-
sion and the State Supreme Court both affirmed.
The latter court stated that the tests for
determining a unitary business are not con-
trolled by the relationship between the taxpay-
er recipient and the affiliate generator of the
income that is the subject of the tax, and con-
cluded that Bendix essentially had a business
function of corporate acquisitions and divesti-
tures that was an integral operational activi-
ty.
Held:
1.The unitary business principle remains an
appropriate device for ascertaining whether a
State has transgressed constitutional limita-
tions in taxing a nondomiciliary corporation.
Pp.6-16.
(a)The principle that a State may not tax
value earned outside its borders rests on both
Due Process and Commerce Clause requirements.
The unitary business rule is a recognition of
the States' wide authority to devise formulae
for an accurate assessment of a corporation's
intrastate value or income and the necessary
limit on the States' authority to tax value or
income that cannot fairly be attributed to the
taxpayer's activities within the State.  The
indicia of a unitary business are functional
integration, centralization of management, and
economies of scale.  F. W. Woolworth Co. v.  Taxa-
tion and Revenue Dept. of N. M., 458 U.S. 354,
364; Container Corp. of America v. Franchise Tax
Bd., 463 U.S., 159, 179.  Pp.6-12.
(b)New Jersey and several amici have not
persuaded this Court to depart from the doc-
trine of stare decisis by overruling the cases
which announce and follow the unitary business
standard.  New Jersey's sweeping theory"that
all income of a corporation doing any business
in a State is, by virtue of common ownership,
part of the corporation's unitary business and
apportionable"cannot be reconciled with the
concept that the Constitution places limits on
a State's power to tax value earned outside its
borders, and is far removed from the latitude
that is granted to States to fashion formulae
for apportionment.  This Court's precedents are
workable in practice.  Any divergent results in
applying the unitary business principle exist
because the variations in the unitary theme are
logically consistent with the underlying princi-
ples motivating the approach and because the
constitutional test is quite fact-sensitive.  In
contrast, New Jersey's proposal would disrupt
settled expectations in an area of the law in
which the demands of the national economy re-
quire stability.  Pp.12-15.
(c)The argument by other amici that the
constitutional test for determining apportion-
ment should turn on whether the income arises
from transactions and activity in the regular
course of the taxpayer's trade or business,
with such income including income from tangible
and intangible property if the acquisition, man-
agement, and disposition of the property con-
stitute integral parts of the taxpayer's regu-
lar trade or business operations does not ben-
efit the State here.  While the payor and payee
need not be engaged in the same unitary busi-
ness, the capital transaction must serve an
operational rather than an investment function.
Container Corp., supra, at 180, n. 19.  The exis-
tence of a unitary relation between the payor
and the payee is but one justification for ap-
portionment.  Pp.15-16.
2.The stipulated factual record in this case
makes clear that, under this Court's prece-
dents, New Jersey was not permitted to include
the gain realized on the sale of Bendix's ASARCO
stock in its apportionable tax base.  There is
no serious contention that any of the three
Woolworth factors were present.  Functional
integration and economies of scale could not
exist because, as the parties stipulated, the
companies were unrelated business enterprises.
Moreover, there was no centralization of man-
agement, since Bendix did not own enough ASARCO
stock to have the potential to operate ASARCO
as an integrated division of a single unitary
business and since even potential control is
insufficient.  Woolworth, supra, at 362.  Con-
trary to the State Supreme Court's view, the
fact that an intangible asset was acquired
pursuant to a long-term corporate strategy of
acquisitions and investment does not turn an
otherwise passive investment into an integral
operation one.  See Container Corp., supra, at
180, n. 19.   The fact that a transaction was
undertaken for a business purpose does not
change its character.  Little is revealed about
whether ASARCO was run as part of Bendix's
unitary business by the fact that Bendix may
have intended to use the proceeds of its gain
to acquire another company.  Nor can it be main-
tained that Bendix's shares amounted to a
short-term investment of working capital analo-
gous to a bank account or a certificate of de-
posit.  See ibid.  Pp.17-19.
125 N.J. 20, 592 A.2d 536, reversed and remand-
ed.

Kennedy, J., delivered the opinion of the Court,
in which White, Stevens, Scalia, and Souter, JJ.,
joined.  O'Connor, J., filed a dissenting opinion, in
which Rehnquist, C. J., and Blackmun and Thomas,
JJ., joined.

Opinion
NOTICE: This opinion is subject to formal
revision before publication in the pre-
liminary print of the United States
Reports.  Readers are requested to
notify the Reporter of Decisions, Su-
preme Court of the United States, Wash-
ington, D.C. 20543, of any typographical
or other formal errors, in order that
corrections may be made before the
preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES--------
             No. 91-615
              --------
ALLIED-SIGNAL, INC., as successor-in-interest
   to THE BENDIX CORPORATION, PETITIONER v.
        DIRECTOR, DIVISION OF TAXATION
     on writ of certiorari to the supreme
              court of new jersey
                                       [June 15, 1992]

  Justice Kennedy delivered the opinion of the
Court.
  Among the limitations the Constitution sets on
the power of a single State to tax the multi-state
income of a nondomiciliary corporation are these:
there must be  a `minimal connection' between the
interstate activities and the taxing State, Mobil
Oil Corp. v. Commissioner of Taxes of Vt., 445 U. S.
425, 436-437 (1980) (quoting Moorman Mfg. Co. v.
Bair, 437 U. S. 267, 273 (1978)), and there must be
a rational relation between the income attributed
to the taxing State and the intrastate value of
the corporate business.  445 U. S., at 437.  Under
our precedents, a State need not attempt to
isolate the intrastate income-producing activi-
ties from the rest of the business; it may tax an
apportioned sum of the corporation's multistate
business if the business is unitary.  E.g. ASARCO
Inc. v. Idaho State Tax Comm'n, 458 U. S. 307, 317
(1982).  A State may not tax a nondomiciliary
corporation's income, however, if it is  derive[d]
from `unrelated business activity' which consti-
tutes a `discrete business enterprise.'  Exxon
Corp. v. Wisconsin Dept. of Revenue, 447 U. S. 207,
224 (1980) (quoting Mobil Oil, supra, at 442, 439).
This case presents the questions: (1) whether the
unitary business principle remains an appropriate
device for ascertaining whether a State has
transgressed its constitutional limitations; and
if so, (2) whether, under the unitary business
principle, the State of New Jersey has the consti-
tutional power to include in petitioner's apporti-
onable tax base certain income which, petitioner
maintains, was not generated in the course of its
unitary business.
                       I
  Petitioner Allied-Signal, Inc., is the successor-
in-interest to the Bendix Corporation (Bendix).
The present dispute concerns Bendix's corporate
business tax liability to the State of New Jersey
for the fiscal year ending September 30, 1981.
Although three items of income were contested
earlier, the controversy in this Court involves
only one item: the gain of $211.5 million realized by
Bendix on the sale of its 20.6% stock interest in
ASARCO Inc. (ASARCO).  The case was submitted
below on stipulated facts, and we begin with a
summary.
  During the times in question, Bendix was a
Delaware corporation with its commercial domicile
and corporate headquarters in Michigan.  Bendix
conducted business in all 50 States and 22 for-
eign countries.  App. 154.  Having started business
in 1929 as a manufacturer of aviation and automo-
tive parts, from 1970 through 1981, Bendix was
organized in four major operating groups: automo-
tive; aerospace/electronics; industrial/energy;
and forest products.  Id., at 154-155.  Each oper-
ating group was under separate management, but
the chief executive of each group reported to the
chairman and chief executive officer of Bendix.
Id., at 155.  In this period Bendix's primary opera-
tions in New Jersey were the development and
manufacture of aerospace products.  Id., at 161.
  ASARCO is a New Jersey corporation with its
principal offices in New York.  It is one of the
world's leading producers of nonferrous metals,
treating ore taken from its own mines and ore it
obtains from others.  Id., at 163-164.  From Decem-
ber 1977 through November 1978, Bendix acquired
20.6% of ASARCO's stock by purchases on the open
market.  Id., at 165.  In the first half of 1981,
Bendix sold its stock back to ASARCO, generating
a gain of $211.5 million.  Id., at 172.  The issue
before us is whether New Jersey can tax an appor-
tionable part of this income.
  Our determination of the question whether the
business can be called  unitary, see infra, at
___-___, is all but controlled by the terms of a
stipulation between the taxpayer and the State.
They stipulated:  During the period that Bendix
held its investment in ASARCO, Bendix and ASARCO
were unrelated business enterprises each of
whose activities had nothing to do with the oth-
er.  Id., at 169.  Furthermore,
 [p]rior to and after its investment in ASARCO,
no business or activity of Bendix (in New
Jersey or otherwise), either directly or
indirectly (other than the investment itself),
was involved in the nonferrous metal produc-
tion business or any other business or activi-
ty (in New Jersey or otherwise) in which ASAR-
CO was involved.  On its part, ASARCO had no
business or activity (in New Jersey or other-
wise) which, directly or indirectly, was in-
volved in any of the businesses or activities
(in New Jersey or otherwise) in which Bendix
was involved.  None of ASARCO's activities,
businesses or income (in New Jersey or other-
wise) were related to or connected with Bendi-
x's activities, business or income (in New
Jersey or otherwise).  Id., at 164-165.

The stipulation gives the following examples of
the independence of the businesses:
      There were no common management, officers,
or employees of Bendix and Asarco.  There was
no use by Bendix of Asarco's corporate plant,
offices or facilities and no use by Asarco of
Bendix's corporate plant, offices or facili-
ties.  There was no rent or lease of any prop-
erty by Bendix from Asarco and no rent or
lease of any property by Asarco from Bendix.
Bendix and Asarco were each responsible for
providing their own legal services, contract-
ing services, tax services, finance services
and insurance.  Bendix and Asarco had sepa-
rate personnel and hiring policies . . . and
separate pension and employee benefit plans.
Bendix did not lend monies to Asarco and
Asarco did not lend monies to Bendix.  There
were no joint borrowings by Bendix and Asarco.
Bendix did not guaranty any of Asarco's debt
and Asarco did not guaranty any of Bendix's
debt.  Asarco had no representative on Bendi-
x's Board of Directors.  Bendix did not pledge
its Asarco stock.  As far as can be determined
there were no sales of product by Asarco
itself to Bendix or by Bendix to Asarco.  Three
were certain sales of product in the ordinary
course of business by Asarco subsidiaries to
Bendix but these sales were minute compared
to Asarco's total sales . . . .  These open
market sales were at arms length prices and
did not come about due to the Bendix invest-
ment in Asarco.  There were no transfers of
employees between Bendix and Asarco.  Id., at
169-171.

  While Bendix held its ASARCO stock, ASARCO
agreed to recommend that two seats on the 14-me-
mber ASARCO Board of Directors be filled by Bendix
representatives.  The seats were filled by Bendix
chief executive officer W.M. Agee and a Bendix
outside director.  Id., at 168.  Nonetheless,
 Bendix did not exert any control over ASARCO.
Ibid.
  After respondent assessed Bendix for taxes on
an apportioned amount which included in the base
the gain realized upon Bendix's disposition of its
ASARCO stock, Bendix sued for a refund in New
Jersey Tax Court.  The case was decided based
upon the stipulated record we have described, and
the Tax Court held that the assessment was
proper.  Bendix Corp. v. Taxation Div. Director, 10
N.J. Tax 46 (1988).  The Appellate Division affirmed,
Bendix Corp. v. Director, Div. of Taxation, 237 N.J.
Super. 328, 568 A.2d 59 (1989), and so, in turn, did
the New Jersey Supreme Court.  Bendix Corp. v.
Director, Div. of Taxation, 125 N.J. 20, 592 A.2d
536 (1991).
  The New Jersey Supreme Court held it was
constitutional to consider the gain realized from
the sale of the ASARCO stock as earned in Bendix's
unitary business, drawing from our decision in
Container Corp. of America v. Franchise Tax Bd.,
463 U. S. 159, 166 (1983), the principle that  the
context for determining whether a unitary busi-
ness exists has, as an overriding consideration,
the exchange or transfer of value, which may be
evidenced by functional integration, central-
ization of management, and economies of scale.
125 N.J., at 34, 592 A.2d, at 543-544.  The New
Jersey Supreme Court went on to state:  The
tests for determining a unitary business are not
controlled, however, by the relationship between
the taxpayer recipient and the affiliate genera-
tor of the income that becomes the subject of
State tax.  Id., at 35, 592 A.2d, at 544.  Based
upon Bendix documents setting out corporate
strategy,  the court found that the acquisition
and sale of ASARCO  went well beyond . . . passive
investments in business enterprises, id., at 36,
592 A.2d, at 544, and Bendix  essentially had a
business function of corporate acquisitions and
divestitures that was an integral operational
activity.  Ibid.  As support for its conclusion
that the proceeds from the sale of the ASARCO
stock were attributable to a unitary business,
the New Jersey Supreme Court relied in part on
the fact that Bendix intended to use those pro-
ceeds in what later proved to be an unsuccessful
bid to acquire Martin Marietta, a company whose
aerospace business, it was hoped, would comple-
ment Bendix's aerospace/electronics business.
Id., at 36, 592 A.2d, at 545.
  We granted certiorari.  502 U. S. ___ (1991).  At
the initial oral argument in this case New Jersey
advanced the proposition that all income earned
by a nondomiciliary corporation could be appor-
tioned by any State in which the corporation does
business.  To understand better the consequences
of this theory we requested rebriefing and rear-
gument.  Our order asked the parties to address
three questions:
``1. Should the Court overrule ASARCO Inc. v.
Idaho State Tax Comm'n, 458 U. S. 307 (1982), and
F. W. Woolworth Co. v. Taxation and Revenue
Dept. of New Mexico, 458 U. S. 354 (1982)?
``2. If ASARCO and Woolworth were overruled,
should the decision apply retroactively?
``3. If ASARCO and Woolworth were overruled,
what constitutional principles should govern
state taxation of corporations doing business
in several states?''  503 U. S. ___ (1992).

Because we give a negative answer to the first
question, see infra, at ___-___, we need not
address the second and third.
                      II
  The principle that a State may not tax value
earned outside its borders rests on the funda-
mental requirement of both the Due Process and
Commerce Clauses that there be  some definite
link, some minimum connection, between a state and
the person, property or transaction it seeks to
tax.  Miller Bros. Co. v. Maryland, 347 U. S. 340,
344-345 (1954).  The reason the Commerce Clause
includes this limit is self-evident: in a Union of
50 States, to permit each State to tax activities
outside its borders would have drastic conse-
quences for the national economy, as businesses
could be subjected to severe multiple taxation.
But the Due Process Clause also underlies our
decisions in this area.  Although our modern due
process jurisprudence rejects a rigid, formalistic
definition of minimum connection, see Quill Corp. v.
North Dakota, 504 U. S. ___, ___-___ (1992), we have
not abandoned the requirement that, in the case
of a tax on an activity, there must be a connec-
tion to the activity itself, rather than a connec-
tion only to the actor the State seeks to tax.
See id., at ___ (quoting Miller Bros., supra, at
344-345).  The constitutional question in a case
such as Quill Corp. is whether the State has the
authority to tax the corporation at all.  The
present inquiry, by contrast, focuses on the
guidelines necessary to circumscribe the reach of
the State's legitimate power to tax.  We are guided
by the basic principle that the State's power to
tax an individual's or corporation's activities is
justified by the  protection, opportunities and
benefits the State confers on those activities.
Wisconsin v. J.C. Penney Co., 311 U. S. 435, 444
(1940).
  Because of the complications and uncertainties
in allocating the income of multistate businesses
to the several States, we permit States to tax a
corporation on an apportionable share of the
multistate business carried on in part in the
taxing State.  That is the unitary business prin-
ciple.  It is not a novel construct, but one which
we approved within a short time after the passage
of the Fourteenth Amendment's Due Process
Clause.  We now give a brief summary of its devel-
opment.
  When States attempted to value railroad or
telegraph companies for property tax purposes,
they encountered the difficulty that what makes
such a business valuable is the enterprise as a
whole, rather than the track or wires which happen
to be located within a State's borders.  The Court
held that, consistent with the Due Process
Clause, a State could base its tax assessments
upon  the proportionate part of the value result-
ing from the combination of the means by which the
business was carried on, a value existing to an
appreciable extent throughout the entire domain
of operation.  Adams Express Co. v. Ohio State
Auditor, 165 U. S. 194, 220-221 (1897) (citing Western
Union Telegraph Co. v. Massachusetts, 125 U. S. 530
(1888); Massachusetts v. Western Union Telegraph
Co., 141 U. S. 40 (1891); Maine v. Grand Trunk R. Co.,
142 U. S. 217 (1891); Pittsburgh, C., C., & S.L. R. Co.
v. Backus, 154 U. S. 421 (1894); Cleveland, C., C., &
S.L. R. Co. v. Backus, 154 U. S. 439 (1894); Western
Union Telegraph Co. v. Taggart, 163 U. S. 1 (1896);
Pullman's Palace Car Co. v. Pennsylvania, 141 U. S. 18
(1891).
  Adams Express recognized that the principles
which permit a State to levy a tax on the capital
stock of a railroad, telegraph, or sleeping car
company by reference to its unitary business also
allow proportional valuation of a unitary busi-
ness in enterprises of other sorts.  As the Court
explained:  The physical unity existing in the
former is lacking in the latter; but there is the
same unity in the use of the entire property for
the specific purpose, and there are the same
elements of value arising from such use.  165
U. S., at 221.
  The unitary business principle was later permit-
ted for state taxation of corporate income as
well as property and capital.  Thus, in Underwood
Typewriter Co. v. Chamberlain, 254 U. S. 113, 120-121
(1920), we explained:
 The profits of the corporation were largely
earned by a series of transactions beginning
with manufacture in Connecticut and ending
with sale in other States.  In this it was
typical of a large part of the manufacturing
business conducted in the State.  The legisla-
ture in attempting to put upon this business
its fair share of the burden of taxation was
faced with the impossibility of allocating
specifically the profits earned by the pro-
cesses conducted within its borders.  It,
therefore, adopted a method of apportionment
which, for all that appears in this record,
reached, and was meant to reach, only the
profits earned within the State.

As these cases make clear, the unitary business
rule is a recognition of two imperatives: the
States' wide authority to devise formulae for an
accurate assessment of a corporation's intra-
state value or income; and the necessary limit on
the States' authority to tax value or income which
cannot in fairness be attributed to the taxpayer-
's activities within the State.  It is this second
component, the necessity for a limiting principle,
that underlies this case.
  As we indicated in Mobil Oil Corp. v. Commissioner
of Taxes, 445 U. S., at 442:  Where the business
activities of the dividend payor have nothing to
do with the activities of the recipient in the
taxing State, due process considerations might
well preclude apportionability, because there
would be no underlying unitary business.  The
constitutional question becomes whether the
income  derive[s] from `unrelated business activi-
ty' which constitutes a `discrete business enterprise.'
Exxon Corp. v. Wisconsin Dept. of Revenue, 447 U. S.
207, 224 (1980) (quoting Mobil Oil, supra, at 442,
439).
       Although Mobil Oil and Exxon made clear that the
unitary business principle limits the States'
taxing power, it was not until our decisions in
ASARCO Inc. v. Idaho State Tax Comm'n, 458 U. S. 307
(1982), and F.W. Woolworth Co. v. Taxation and
Revenue Dept. of N.M., 458 U. S. 354 (1982), that we
struck down a state attempt to include in the
apportionable tax base income not derived from
the unitary business.  In those cases the States
sought to tax unrelated business activity.
  The principal question in ASARCO concerned
Idaho's attempt to include in the apportionable
tax base of  ASARCO certain dividends received
from, among other companies, the Southern Peru
Copper Corp.  458 U. S., at 309, 320.  The analysis
is of direct relevance for us because we have held
that for constitutional purposes capital gains
should be treated as no different from dividends.
Id., at 330.  The ASARCO in the 1982 case was the
same company as the ASARCO here.  It was one of
four of Southern Peru's shareholders, owning
51.5% of its stock.  Under an agreement with the
other shareholders, ASARCO was prevented from
dominating Southern Peru's board of directors.
ASARCO had the right to appoint 6 of Southern
Peru's 13 directors, while 8 votes were required
for the passage of any resolution.  Southern Peru
was in the business of producing unrefined copper
(a nonferrous ore), some of which it sold to its
shareholders.  ASARCO purchased approximately
35% of Southern Peru's output, at average repre-
sentative trade prices quoted in a trade publica-
tion and over which neither Southern Peru nor
ASARCO had any control.  Id., at 320-322.  We
concluded that  ASARCO's Idaho silver mining and
Southern Peru's autonomous business [were]
insufficiently connected to permit the two compa-
nies to be classified as a unitary business.  Id.,
at 322.
  On the same day we decided ASARCO, we decided
Woolworth.  In that case, the taxpayer company was
domiciled in New York and operated a chain of
retail variety stores in the United States.  In the
company's apportionable state tax base, New
Mexico sought to include earnings from four
subsidiaries operating in foreign countries.  The
subsidiaries also engaged in chainstore retailing.
Woolworth, supra, at 356-357.  We observed that
although the parent company had the potential to
operate the subsidiaries as integrated divisions
of a single unitary business, that potential was
not significant if the subsidiaries in fact com-
prise discrete business operations.  Id., at 362.
Following the indicia of a unitary business de-
fined in Mobil Oil, we inquired whether any of the
three objective factors were present.  The fac-
tors were: (1) functional integration; (2) central-
ization of management; and (3) economies of scale.
Woolworth, supra, at 364.  We found that  [e]xcept
for the type of occasional oversight " with
respect to capital structure, major debt, and
dividends " that any parent gives to an invest-
ment in a subsidiary, id., at 369, none of these
factors was present.  The subsidiaries were found
not to be part of a unitary business.  Ibid.
  Our most recent case applying the unitary
business principle was Container Corp. of America
v. Franchise Tax Bd., 463 U. S. 159 (1983).  The
taxpayer there was a vertically integrated
corporation which manufactured custom-ordered
paperboard packaging.  Id., at 171.  California
sought to tax income it received from its wholly
owned and mostly owned foreign subsidiaries, each
of which was in the same business as the parent.
Id., at 171-172.  The foreign subsidiaries were
given a fair degree of autonomy: they purchased
only 1% of their materials from the parent and
personnel transfers from the parent to the
subsidiaries were rare.  Id., at 172.  We recog-
nized, how-ever:
 [I]n certain respects, the relationship be-
tween appellant and its subsidiaries was
decidedly close.  For example, approximately
half of the subsidiaries' long-term debt was
either held directly, or guaranteed, by appel-
lant.  Appellant also provided advice and
consultation regarding manufacturing tech-
niques, engineering, design, architecture,
insurance, and cost accounting to a number of
its subsidiaries, either by entering into
technical service agreements with them or by
informal arrangement.  Finally, appellant
occasionally assisted its subsidiaries in
their procurement of equipment, either by
selling them used equipment of its own or by
employing its own purchasing department to
act as an agent for the subsidiaries.  Id., at
173.

Based on these facts, we found that the taxpayer
had not met its burden of showing by  ```clear and
cogent evidence''' that the State sought to tax
extraterritorial values.  Id., at 175, 164 (quoting
Exxon Corp., supra, at 221, in turn quoting Butler
Bros. v. McColgan, 315 U. S. 501, 507 (1942), in turn
quoting Norfolk  Western R. Co. v. North Carolina ex
rel. Maxwell, 297 U. S. 682, 688 (1936)).
  In the course of our decision in Container Corp.,
we reaffirmed that the constitutional test focus-
es on functional integration, centralization of
management, and economies of scale.  463 U. S., at
179 (citing Woolworth, supra, at 364; Mobil Oil,
supra, at 438).  We also reiterated that a unitary
business may exist without a flow of goods be-
tween the parent and subsidiary, if instead there
is a flow of value between the entities.  Id., at
178.  The principal virtue of the unitary business
principle of taxation is that it does a better job
of accounting for  the many subtle and largely
unquantifiable transfers of value that take place
among the components of a single enterprise
than, for example, geographical or transactional
accounting.  Id., at 164-165 (citing Mobil Oil Corp.,
445 U. S., at 438-439).
  Notwithstanding the Court's long experience in
applying the unitary business principle, New
Jersey and several amici curiae argue that it is
not an appropriate means for distinguishing
between income generated within a State and
income generated without.  New Jersey has not
persuaded us to depart from the doctrine of stare
decisis by overruling our cases which announce
and follow the unitary business standard.  In
deciding whether to depart from a prior decision,
one relevant consideration is whether the deci-
sion is  unsound in principle.  Garcia v. San
Antonio Metropolitan Transit Authority, 469 U. S.
528, 546 (1985).  Another is whether it is  unwork-
able in practice.  Ibid.  And, of course, reliance
interests are of particular relevance because
 [a]dherence to precedent promotes stability,
predictability, and respect for judicial authori-
ty.  Hilton v. South Carolina Public Railways
Comm'n, 502 U. S. ___, ___ (1991) (citing Vasquez v.
Hillery, 474 U. S. 254, 265-266 (1986)).  See also
Quill Corp. v. North Dakota, 504 U. S., at ___
(industry's reliance justifies adherence to
precedent); id., at ___ (Scalia, J., concurring in
part and concurring in judgment) (same).  Against
this background we address the arguments of New
Jersey and its amici.
  New Jersey contends that the unitary business
principle must be abandoned in its entirety,
arguing that a nondomiciliary State should be
permitted  to apportion all the income of a sepa-
rate multistate corporate taxpayer.  Brief for
Respondent on Reargument 27.  According to New
Jersey, the unitary business principle does not
reflect economic reality, while its proposed
theory does.  We are not convinced.
  New Jersey does not appear to dispute the basic
proposition that a State may not tax value earned
outside its borders.  It contends instead that all
income of a corporation doing any business in a
State is, by virtue of common ownership, part of
the corporation's unitary business and apportion-
able.  See Tr. of Oral Arg. 25-26 (Apr. 22, 1992).
New Jersey's sweeping theory cannot be reconciled
with the concept that the Constitution places
limits on a State's power to tax value earned
outside of its borders.  To be sure, our cases
give States wide latitude to fashion formulae
designed to approximate the instate portion of
value produced by a corporation's truly multista-
te activity.  But that is far removed from New
Jersey's theory that any business in the State,
no matter how small or unprofitable, subjects all
of a corporation's out-of-state income, no matter
how discrete, to apportionment.
  According to New Jersey, Brief for Respondent
on Reargument 11, there is no logical distinction
between short term investment of working capital,
which all concede is apportionable, see Reply
Brief for Petitioner on Reargument 4-5 and n.3;
Tr. of Oral Arg. 7-8 (Apr. 22, 1992); Container Corp.,
463 U. S., at 180, n.19, and all other investments.
The same point was advanced by the dissent in
ASARCO, 458 U. S., at 337 (opinion of O'Connor, J.).
New Jersey's basic theory is that multistate
corporations like Bendix regard all of their
holdings as pools of assets, used for maximum
long-term profitability, and that any distinction
between operational and investment assets is
artificial.  We may assume, arguendo, that the
managers of Bendix cared most about the profits
entry on a financial statement, but that state of
mind sheds little light on the question whether in
pursuing maximum profits they treated particular
intangible assets as serving, on the one hand, an
investment function, or, on the other, an opera-
tional function.  See Container Corp., supra, at 180,
n. 19.  That is the relevant unitary business
inquiry, one which focuses on the objective
characteristics of the asset's use and its rela-
tion to the taxpayer and its activities within the
taxing State.  It is an inquiry to which our cases
give content, and which is necessary if the limits
of the Due Process and Commerce Clauses are to
have substance in a modern economy.  In short, New
Jersey's suggestion is not in accord with the
well-established and substantial case law inter-
preting the Due Process and Commerce Clauses.
  Our precedents are workable in practice; indeed,
New Jersey conceded as much.  See Tr. of Oral Arg.
37-38 (Apr. 22, 1992).  If lower courts have
reached divergent results in applying the unitary
business principle to different factual circum-
stances, that is because, as we have said, any
number of variations on the unitary business
theme  are logically consistent with the underly-
ing principles motivating the approach, Container
Corp., supra, at 167, and also because the consti-
tutional test is quite fact-sensitive.
  Indeed, if anything would be unworkable in
practice, it would be for us now to abandon our
settled jurisprudence defining the limits of state
power to tax under the unitary business principle.
State legislatures have relied upon our prece-
dents by enacting tax codes which allocate intan-
gible nonbusiness income to the domiciliary State,
see App. to Brief for Petitioner on Reargument 1a-
7a (collecting statutes).  Were we to adopt New
Jersey's theory, we would be required either to
invalidate those statutes or authorize what would
be certain double taxation.  And, of course, we
would defeat the reliance interest of those
corporations which have structured their activi-
ties and paid their taxes based upon the well-
established rules we here confirm.  Difficult
questions respecting the retroactive effect of
our decision would also be presented.  See James
B. Beam Distilling Co. v. Georgia, 501 U. S. ___
(1991).  New Jersey's proposal would disrupt set-
tled expectations in an area of the law in which
the demands of the national economy require stability.
  Not willing to go quite so far as New Jersey,
some amici curiae urge us to modify, rather than
abandon, the unitary business principle.  See,
e.g., Brief for Multistate Tax Commission as
Amicus Curiae; Brief for Multistate Tax Commission
as Amicus Curiae on Reargument; Brief for Chevron
Corporation as Amicus Curiae.  They urge us to
hold that the Constitution does not require a
unitary business relation between the payor and
the payee in order for a State to apportion the
income the payee corporation receives from an
investment in the payor.  Rather, they urge us to
adopt as the constitutional test the standard set
forth in the business income definition in section
1(a) of the Uniform Division of Income for Tax
Purposes Act (UDITPA), 7A U.L.A. 331, 336 (1985).
Under UDITPA,  business income, which is appor-
tioned, is defined as:  income arising from trans-
actions and activity in the regular course of the
taxpayer's trade or business and includes income
from tangible and intangible property if the
acquisition, management and disposition of the
property constitute integral parts of the taxpay-
er's regular trade or business operations.
UDITPA 1(a).   Non-business income, which is
allocated, is defined as  all income other than
business income.  UDITPA 1(e).
  In the abstract, these definitions may be quite
compatible with the unitary business principle.
See Container Corp., supra, at 167 (noting that
most of the relevant provisions of the California
statute under which we sustained the challenged
tax there were derived from UDITPA).  Further-
more, the unitary business principle is not so
inflexible that as new methods of finance and new
forms of business evolve it cannot be modified or
supplemented where appropriate.  It does not
follow, though, that apportionment of all income is
permitted by the mere fact of corporate presence
within the State; and New Jersey offers little
more in support of the decision of the State
Supreme Court.
  We agree that the payee and the payor need not
be engaged in the same unitary business as a
prerequisite to apportionment in all cases.
Container Corp. says as much.  What is required
instead is that the capital transaction serve an
operational rather than an investment function.
463 U. S., at 180, n.19.  Hence, in ASARCO, although
we rejected the dissent's factual contention that
the stock investments there constituted  interim
uses of idle funds `accumulated for the future
operation of [the taxpayer's] business [operation],'
we did not dispute the suggestion that had that
been so the income would have been apportionable.
458 U. S., at 325, n. 21.
  To be sure, the existence of a unitary relation
between the payor and the payee is one means of
meeting the constitutional requirement.  Thus, in
ASARCO and Woolworth we focused on the question
whether there was such a relation.  We did not
purport, however, to establish a general require-
ment that there be a unitary relation between the
payor and the payee to justify apportionment, nor
do we do so today.
  It remains the case that  [i]n order to exclude
certain income from the apportionment formula,
the company must prove that `the income was
earned in the course of activities unrelated to
[those carried out in the taxing] State.'  Exxon
Corp. v. Wisconsin Dept. of Revenue, 447 U. S. 207,
223 (1980) (quoting  Mobil Oil Corp. v. Commissioner
of Taxes, 445 U. S. 425, 439 (1980).  The existence
of a unitary relation between payee and payor is
one justification for apportionment, but not the
only one.  Hence, for example, a State may include
within the apportionable income of a nondomicilia-
ry corporation the interest earned on short-term
deposits in a bank located in another state if
that income forms part of the working capital of
the corporation's unitary business, notwithstand-
ing the absence of a unitary relationship between
the corporation and the bank.  That circumstance,
of course, is not at all presented here.  See
infra, at ___.                      III
  Application of the foregoing principles to the
present case yields a clear result: the stipulated
factual record now before us presents an even
weaker basis for inferring a unitary business
than existed in either ASARCO or Woolworth, making
this an a fortiori case.  There is no serious
contention that any of the three factors upon
which we focused in Woolworth were present.
Functional integration and economies of scale
could not exist because, as the parties have
stipulated,  Bendix and ASARCO were unrelated
business enterprises each of whose activities had
nothing to do with the other.  App. 169.  Moreover,
because Bendix owned only 20.6% of ASARCO's
stock, it did not have the potential to operate
ASARCO as an integrated division of a single
unitary business, and of course, even potential
control is not sufficient.  Woolworth, 458 U. S., at
362.  There was no centralization of management.
  Furthermore, contrary to the view expressed
below by the New Jersey Supreme Court, see 125
N.J., at 36-37, 592 A.2d, at 544-545, the mere fact
that an intangible asset was acquired pursuant to
a long-term corporate strategy of acquisitions
and dispositions does not convert an otherwise
passive investment into an integral operational
one.  Indeed, in Container Corp. we noted the
important distinction between a capital transac-
tion which serves an investment function and one
which serves an operational function.  463 U. S.,
at 180, n.19 (citing Corn Products Refining Co. v.
Commissioner, 350 U. S. 46, 50-53 (1955)).  If that
distinction is to retain its vitality, then, as we
held in ASARCO, the fact that a transaction was
undertaken for a business purpose does not
change its character.  458 U. S., at 326.  Idaho had
argued that intangible income could be treated as
earned in the course of a unitary business if the
intangible property which produced that income is
 `acquired, managed or disposed of for purposes
relating or contributing to the taxpayer's business.'
Ibid. (quoting Brief for Appellee 4).  In rejecting
the argument weobserved:
     ``This definition of unitary business would
destroy the concept.  The business of a cor-
poration requires that it earn money to con-
tinue operations and to provide a return on
its invested capital.  Consequently all of its
operations, including any investment made, in
some sense can be said to be `for purposes
related to or contributing to the [corporatio-
n's] business.'  When pressed to its logical
limit, this conception of the `unitary business'
limitation becomes no limitation at all.''  458
U. S., at 326.

Apart from semantics, we see no distinction
between the  purpose test we rejected in ASARCO
and the  ingrained acquisition-divestiture poli-
cy approach adopted by the New Jersey Supreme
Court.  125 N.J., at 36, 592 A.2d, at 544.  The
hallmarks of an acquisition which is part of the
taxpayer's unitary business continue to be func-
tional integration, centralization of management,
and economies of scale.  Container Corp. clarified
that these essentials could respectively be
shown by: transactions not undertaken at arm's
length, 463 U. S., at 180, n. 19; a management role
by the parent which is grounded in its own opera-
tional expertise and operational strategy, ibid.;
and the fact that the corporations are engaged in
the same line of business.  Id., at 178.  It is
undisputed that none of these circumstances
existed here.
  The New Jersey Supreme Court also erred in
relying on the fact that Bendix intended to use
the proceeds of its gain from the sale of ASARCO
to acquire Martin Marietta.  Even if we were to
assume that Martin Marietta, once acquired, would
have been operated as part of Bendix's unitary
business, that reveals little about whether
ASARCO was run as part of Bendix's unitary busi-
ness.  Nor can it be maintained that Bendix's
shares of ASARCO stock, which it held for over two
years, amounted to a short-term investment of
working capital analogous to a bank account or
certificate of deposit.  See Container Corp., supra,
at 180, n. 19; ASARCO, supra, at 325, n. 21.
  In sum, the agreed-upon facts make clear that
under our precedents New Jersey was not permit-
ted to include the gain realized on the sale of
Bendix's ASARCO stock in the former's apportiona-
ble tax base.
  The judgment of the New Jersey Supreme Court is
reversed, and the case is remanded for further
proceedings not inconsistent with this opinion.



It is so ordered.

Dissent
      SUPREME COURT OF THE UNITED STATES--------
             No. 91-615
              --------
ALLIED-SIGNAL, INC., as successor-in-interest
   to THE BENDIX CORPORATION, PETITIONER v.
        DIRECTOR, DIVISION OF TAXATION
     on writ of certiorari to the supreme
              court of new jersey
                [June 15, 1992]

       Justice O'Connor, with whom the Chief Justice,
Justice Blackmun, and Justice Thomas join,
dissenting.
  In my view, petitioner has not shown by  clear
and cogent evidence that its investment in
ASARCO was not operationally related to the
aerospace business petitioner conducted in New
Jersey.  Exxon Corp v. Wisconsin Dept. of Revenue,
447 U. S. 207, 221 (1980) (internal quotation marks
omitted).  Though I am largely in agreement with
the Court's analysis, I part company on the appli-
cation of it here.
  I agree with the Court that we cannot adopt New
Jersey's suggestion that the unitary business
principle be replaced by a rule allowing a State to
tax a proportionate share of all the income
generated by any corporation doing business
there.  See ante, at 12-13.  Were we to adopt a rule
allowing taxation to depend upon corporate iden-
tity alone, as New Jersey suggests, the entire
Due Process inquiry would become fictional, as the
identities of corporations would fracture in a
corporate shell game to avoid taxation.  Under New
Jersey's theory, for example, petitioner could
avoid having its ASARCO investment taxed in New
Jersey simply by establishing a separate subsid-
iary to hold those earnings outside New Jersey.
A constitutional principle meant to insure that
States tax only business activities they can
reasonably claim to have helped support
should depend on something more than manipula-
tions of corporate structure.  See Mobil Oil Corp.
v. Commissioner of Taxes of Vermont, 445 U. S. 425,
440 (1980) ( the form of business organization may
have nothing to do with the underlying unity or
diversity of business enterprise); Fargo v. Hart,
193 U. S. 490 (1904) (refusing to find unitary
business even though single owner); Adams Express
Co. v. Ohio State Auditor, 165 U. S. 194, 222 (1897)
(same).
  New Jersey suggests that we should presume
that all the holdings of a single corporation are
mutually interdependent because common owner-
ship will stabilize profits from the commonly held
businesses, generating flows of value between
them that make them part of a unity.  While it may
be true that many corporations attempt to diver-
sify their holdings to avoid business cycles, we
have refused to presume a flow of value into an
in-state business from the potential benefits of
being part of a larger multi-state, multi-business
corporation.  The reason for this is simple:
diversification may benefit the corporation as an
entity without necessarily affecting the business
activity in the taxing State and without requiring
any support from the taxing State.  See Wisconsin
v. J.C. Penney Co., 311 U. S. 435, 444 (1940) (State
may not tax where it has not  given anything for
which it can ask return).
  I also agree with the Court that there need not
be a unitary relationship between the underlying
business of a taxpayer and the companies in which
it invests in order for a State to tax investment
income.  See ante, at 16.   [A]ctive operational
control of the investment income payor by the
taxpayer is certainly not required, ASARCO Inc. v.
Idaho State Tax Comm'n, 458 U. S. 307, 343 (1982)
(dissenting opinion).  Insofar as a requirement
that the investment payor and payee be unitary
was suggested by our decisions in ASARCO, and F.W.
Woolworth Co. v. Taxation and Revenue Dept. of New
Mexico, 458 U. S. 354 (1982), petitioner concedes
that was a  doctrinal foot fault.  Reply Brief for
Petitioner on Reargument 4.  Although a unitary
relationship between the investment income payor
and payee would suffice to relate the investment
income to the in-state business, such a connec-
tion is not necessary.  Taxation of investment
income received from a nondomiciliary taxpayer's
investment in another corporation requires only
that the investment income be sufficiently relat-
ed to the taxpayer's in-state business, not that
the taxpayer's business and the corporation in
which it invests be unitary.  Only when the State
seeks to tax directly the income of a nondomicilia-
ry taxpayer's subsidiary or affiliate though
combined reporting, see Container Corp. of America
v. Franchise Tax Bd., 463 U. S. 159, 169, and n. 7
(1983), must the underlying businesses of the
taxpayer and its affiliate or subsidiary be uni-
tary.  In any case, the key question for purposes
of due process is whether the income that the
State seeks to tax is, by the time it is realized,
sufficiently related to a unitary business, part
of which operates in the taxing State.
  In this connection, I agree with the Court that
out-of-state investments serving an operational
function in the nondomiciliary taxpayer's in-state
business are sufficiently related to that busi-
ness to be taxed.  In particular, I agree that
 `interim uses of idle funds ``accumulated for the
future operation of [the taxpayer's] business [operation],'''
may be taxed.  Ante, at 16 (quoting ASARCO, supra,
at 325, n. 21).  The Court, however, leaves  opera-
tional function largely undefined.  I presume that
the Court's test allows taxation in at least those
circumstances in which it is allowed by the Uniform
Division of Income for Tax Purposes Act (UDITPA).
Ante, at 15.  UDITPA counts as apportionable
business income from  tangible and intangible
property if the acquisition, management, and
disposition of the property constitute integral
parts of the taxpayer's regular trade or business
operations.  UDITPA 1(a), 7A U.L.A. 336 (1985)
(emphasis added).  Presumably, investment income
serves an operational function if it is, to give
only some examples, intended to be used by the
time it is realized for making the business' antici-
pated payments; for expanding or replacing plants
and equipment; or for acquiring other unitary
businesses that will serve the in-state business
as stable sources of supply or demand, or that
will generate economies of scale or savings in
administration.
  In its application of these principles to this
case, however, I diverge from the Court's analy-
sis.  The Court explains that while  interest
earned on short-term deposits in a bank located
in another State may be taxed  if that income
forms part of the working capital of the corporat-
ion's unitary business, petitioner's longer-term
investment in ASARCO may not be taxed.  Ante, at
16.  The Court finds the investment here not to be
operational because it was not analogous to a
 short-term investment of working capital analo-
gous to a bank account or certificate of deposit.
Ante, at 18-19.
  Any distinction between short-term and long-
term investments cannot be of constitutional
dimension.  Whether an investment is short-term
or long-term, what matters for due process
purposes is whether the investment is operation-
ally related to the in-state business.   The
interim investment of retained earnings prior to
their commitment to a major corporate project . . .
merely recapitulates on a grander scale the
short-term investment of working capital prior to
its commitment to the daily financial needs of the
company.  ASARCO, supra, at 338 (dissenting
opinion).  I see no distinction relevant to due
process between investing in a company in order
to build capital to acquire a second company
related to the in-state business and, for example,
 leas[ing] for a term of years the areas of [the
taxpayer's] office buildings into which it intends
ultimately to expand, which could hardly be
claimed to set up a  separate and unrelated
leasing business.  Id., at 338, n. 6.
  The link between the ASARCO investment here and
the in-state business is closer than the Court
suggests.  It is not just that the ASARCO invest-
ment was made to benefit Bendix as a corporate
entity.  As the Court points out, any investment
a corporation makes is intended to benefit the
corporation in general.  Ante, at 18.  The proper
question is rather:  Was the income New Jersey
seeks to tax intended to be used to benefit a
unitary business of which Bendix's New Jersey
operations were a part?
  Petitioner has not carried the heavy burden of
showing by clear and cogent evidence that the
capital gains from ASARCO were not operationally
related to its in-state business.  See Container
Corp., supra, at 175.  Though this case comes to us
on a stipulated record, there is no stipulation
that the ASARCO capital gains were not intended
to be used to benefit a unitary business, part of
which operated in New Jersey.  Instead, the record
suggests that, by the time the capital gains were
realized, at least some of the income was intended
to be used in the attempt to acquire a corpora-
tion also engaged in the aerospace industry.  App.
70-71, 81, 193.  The acquisition of Martin Marietta,
had it succeeded, would have been part of petitio-
ner's unitary aerospace business, part of which
operated in New Jersey.  Id., at 194.  As the New
Jersey Supreme Court found:   [T]he purpose of
acquiring Martin Marietta was to complement the
aerospace-electronics facets of Bendix business,
some of which are located in New Jersey. . . . Even
though the Martin Marietta takeover never came
to fruition, the fact that it served as a goal for
part of the capital generated by the sales of
ASARCO . . . stock nurtures the premise that
Bendix's ingrained policy of acquisitions and
divestitures projected the existence of a unitary
business.  Bendix Corp. v. Director, Division of
Taxation, 125 N.J. 20, 38, 592 A.2d 536, 545 (1991).
We will,  if reasonably possible, defer to the
judgment of state courts in deciding whether a
particular set of activities constitutes a `uni-
tary business.'  Container Corp., supra, at 175.
Because petitioner has failed to show by clear
and cogent evidence that the income derived from
the ASARCO investment was not related to the
operations of its unitary aerospace business,
part of which was in New Jersey, New Jersey
should be able to apportion and tax that income.
As the Court holds that it may not, I must re-
spectfully dissent.
