New Hampshire Supreme Court Upholds Constitutionality of Dividends Received Deduction

New Hampshire Supreme Court Upholds Constitutionality of Dividends Received Deduction

The New Hampshire Supreme Court has upheld the constitutionality of a statute that permits a parent corporation to take a business profits tax deduction for dividends received from foreign subsidiaries conducting business in the state.

The New Hampshire Supreme Court has upheld the constitutionality of a statute that permits a parent corporation to take a business profits tax deduction for dividends received from foreign subsidiaries conducting business in the state (General Electric Co. v. Dep't of Revenue, Dec. 5, 2006). General Electric Company Inc. (GE) is headquartered in New York, with its principal place of business in Connecticut. During the tax years at issue, GE transacted business in the state as a "business organization" and was subject to the business profits tax (BPT). GE filed a request with the Department of Revenue claiming BPT deductions for dividends received from its foreign subsidiaries. The department denied GE's request because its foreign subsidiaries did not transact business in the state and therefore its gross business profits were not taxable. GE filed a complaint in superior court, arguing that RSA 77-A:4, IV, which allows a parent corporation to claim a deduction for dividends received from only in-state foreign subsidiaries, violates the federal Commerce Clause. The superior court dismissed the complaint, holding that GE lacked standing to challenge the statute. Alternatively, the court determined that RSA 77-A:4, IV does not facially discriminate against foreign commerce. GE then appealed to the New Hampshire Supreme Court. The court first determined that GE had standing to challenge the constitutionality of RSA 77-A:4, IV because it was denied the statute's benefit. The court explained that any corporate parent that pays BPT in the state but is ineligible for the statutory dividends received deduction is a proper party to bring suit to determine whether its ineligibility is constitutionally permissible. Next, the court held that by viewing the state's taxing regime as a whole, RSA 77-A:4, IV does not facially discriminate against a dividend-paying foreign subsidiary that does not conduct business in the state. The court determined that a unitary business with a foreign subsidiary operating in the state and a unitary business with a foreign subsidiary not operating in the state are each only taxed once. The court explained that a foreign subsidiary conducting business in the state is subject to the BPT and its parent corporation may take a dividends received deduction up to the amount of the subsidiary's business profits already taxed. In contrast, the court concluded that a foreign subsidiary that does not conduct business in the state is not subject to the BPT and any dividends paid to an in-state parent corporation are apportioned and taxed as income. The court noted that "although the total tax assessed in the end may not be exactly equal . . . the state's taxation methods need 'not apportion income perfectly.'" The superior court's decision was affirmed in part and reversed in part.

The New Hampshire Supreme Court has upheld the constitutionality of a statute that permits a parent corporation to take a business profits tax deduction for dividends received from foreign subsidiaries conducting business in the state (General Electric Co. v. Dep't of Revenue, Dec. 5, 2006). General Electric Company Inc. (GE) is headquartered in New York, with its principal place of business in Connecticut. During the tax years at issue, GE transacted business in the state as a "business organization" and was subject to the business profits tax (BPT). GE filed a request with the Department of Revenue claiming BPT deductions for dividends received from its foreign subsidiaries. The department denied GE's request because its foreign subsidiaries did not transact business in the state and therefore its gross business profits were not taxable. GE filed a complaint in superior court, arguing that RSA 77-A:4, IV, which allows a parent corporation to claim a deduction for dividends received from only in-state foreign subsidiaries, violates the federal Commerce Clause. The superior court dismissed the complaint, holding that GE lacked standing to challenge the statute. Alternatively, the court determined that RSA 77-A:4, IV does not facially discriminate against foreign commerce. GE then appealed to the New Hampshire Supreme Court. The court first determined that GE had standing to challenge the constitutionality of RSA 77-A:4, IV because it was denied the statute's benefit. The court explained that any corporate parent that pays BPT in the state but is ineligible for the statutory dividends received deduction is a proper party to bring suit to determine whether its ineligibility is constitutionally permissible. Next, the court held that by viewing the state's taxing regime as a whole, RSA 77-A:4, IV does not facially discriminate against a dividend-paying foreign subsidiary that does not conduct business in the state. The court determined that a unitary business with a foreign subsidiary operating in the state and a unitary business with a foreign subsidiary not operating in the state are each only taxed once. The court explained that a foreign subsidiary conducting business in the state is subject to the BPT and its parent corporation may take a dividends received deduction up to the amount of the subsidiary's business profits already taxed. In contrast, the court concluded that a foreign subsidiary that does not conduct business in the state is not subject to the BPT and any dividends paid to an in-state parent corporation are apportioned and taxed as income. The court noted that "although the total tax assessed in the end may not be exactly equal . . . the state's taxation methods need 'not apportion income perfectly.'" The superior court's decision was affirmed in part and reversed in part.