Union Pacific Corp. v. Idaho State Tax Commission, 136 Idaho 34

Summary

The Idaho Supreme Court reviewed the apportionment of Union Pacific's income for Idaho tax years 1991 through 1993. The court held that including both freight accounts receivable and proceeds from their sale could produce an inequitable apportionment, requiring consideration of an alternative formula. It also held that Idaho's definition of business income contains two independent parts and remanded for consideration of whether dividends from a mining partnership constituted business income under the second part.

Holdings

1. Because the Tax Commission admitted that the transactions qualified as sales under Idaho Code § 63-3027(a)(5) and that the proceeds were business income, the proceeds were properly includable in the sales factor for apportioning Union Pacific's business income.
2. Including both accounts receivable arising from freight sales and the money received from selling those accounts receivable resulted in an apportionment that did not fairly represent Union Pacific's business activity in Idaho; the district court therefore had to consider an alternative apportionment formula under Idaho Code § 63-3027(r).
3. Idaho Code § 63-3027(a)(1) contains two separate and independent definitions of business income. Even if the dividends did not arise from transactions and activity in the regular course of Union Pacific's trade or business, the district court had to determine whether they arose from the acquisition, management, or disposition of property that constituted an integral or necessary part of Union Pacific's trade or business operations.

Questions Presented

1. Whether proceeds from Union Pacific's sales of accounts receivable were sales under Idaho Code § 63-3027 and could be included in the sales factor.
2. Whether inclusion of both freight receivables and proceeds from the sale of those receivables caused the statutory apportionment formula not to fairly represent Union Pacific's Idaho business activity, requiring consideration of an alternative apportionment formula.
3. Whether dividends received from the limited partnership mining operation could constitute business income under the second, property-based definition in Idaho Code § 63-3027(a)(1), even though the Tax Commission conceded they did not arise from transactions and activity in the regular course of Union Pacific's trade or business.

Disposition

vacated