Document Type



Taxation-Federal | Taxation-State and Local | Tax Law


In ASARCO, Inc. v. Idaho State Tax Commission, the Supreme Court rejected Idaho’s definition of income, and limited the apportionability of dividends, interest, and capital gains. The Court held that a unitary business relationship did not exist between ASARCO and the dividend payors, but did not address whether such a relationship was a sufficient precondition or a necessary one.

This article addresses two federal tax doctrines that may provide insight into state taxation of dividends: (1) the “effectively connected” doctrine, and (2) the Corn Products doctrine. The article first provides a detailed examination of the facts in ASARCO, and discusses the Court’s holding. The article explains that Idaho’s sweeping definition of income, which conflated business and nonbusiness income, invited the Court’s rejection. Next, the article examines the applicability of Mobil Oil Corp. v. Commissioner of Taxes of Vermont, and how that holding is not dispositive regarding the apportionability of dividends in general. Finally, the article discusses the two aforementioned federal tax doctrines. These two doctrines do not expressly address the characterization of dividends as business income, but implicate the same underlying issue. The article concludes by explaining that the tax treatment of dividends and capital gains as business income is not unique to state taxation.