WPC d@|d[ES1Qԏs[ӠIy/E:A[UTwdOz$1ۡrsui~2hc JۉO.&t<Ӊba'т$HV5Z\10'Y_*Kվ&%ؒ !h}MC_SrԨ{"}ȥ]]Nov rvt»yidl ٣Qch 5xnEzNYY5'ޯŴ@JHe~pUGEii'-8[').>jc08k' AgNCLD }𧽋{2kr8FTJ)ǩqnd;[Y nӹf ݬd#!xU N % 0F^ 3 w? 4C W f mh UN 1u 1B 72  3 B6 U:x 0c 1 N 1 1%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%% 0b D5 BCCCC AQ` 0bw 0DHP LaserJet 8000 DN PS0(I Z6Times New Roman Regular(i$  USUS.,ԧ}\'L tpO'@ 3|xU(hH  Z 6Times New Roman Regular##37=CIQYag1.a.i.(1)(a)(i)1)a)05hCEKQW]cioAutoList11.1.1.1.1.1.1.1. i)  ) bq"  USUS.,  _    Ad FILEDXmX   October28,1999CecilCrowson,Jr.AppellateCourtClerkdA  88Ddd8,OAZ"Arial Regular(;3$2#  0  .3  0  (EhCEKQW]cioAutoList21.1.1.1.1.1.1.1.(ehCEKQW]cioAutoList41.1.1.1.1.1.1.1.(uhCEKQW]cioAutoList51.1.1.1.1.1.1.1.(:3q$ i!  USUS.,  \\\\)!dxdx dabZc[C<<CLevel 1Level 2Level 3Level 4Level 5(:3q$ i!  USUS.,  ($$   1  i!  USUS.,  _TR[A' Legal3'A' Legal3'T-,XXDpXX-  _L.M.BERRY&COMPANY, 8   )  x`[B2.jz=`  `@E` 8ttxP( = x  0      8   ) Plaintiff/Appellant, 8   ) $   0      8   )  AppealNo. 6 v.  0      8   )  01A019809CH00487 H   0      8   )JOEB.HUDDLESTON,inhisofficial  )  DavidsonChancery  l capacityasCOMMISSIONEROF  )  No.943189I . ~ REVENUE,STATEOFTENNESSEE,  ) @    0      8   )   R   Defendant/Appellee. 8   ) d    COURTOFAPPEALSOFTENNESSEEAPPEALFROMTHECHANCERYCOURTFORDAVIDSONCOUNTYATNASHVILLE,TENNESSEETHEHONORABLEIRVINH.KILCREASE,JR.,CHANCELLOR  XXRICHARDW.BELL     8     JONATHANCOLE r GeneralAttorney     8     Baker,Donelson,Bearman& ^  CaldwellBellSouthCorporation   8     511UnionStreet,Suite1700 6" 1155PeachtreeStreet,N.E.,Suite1800    1700NashvilleCityCenter "#r Atlanta,Georgia30309   8     Nashville,Tennessee37219 $^ GREGORYG.FLETCHERBaker,Donelson,Bearman&Caldwell2000FirstTennesseeBuilding165MadisonAvenueMemphis,Tennessee38103 ATTORNEYSFORPLAINTIFF/APPELLANTPAULG.SUMMERSAttorneyGeneralandReporterJIMMYG.CREECYOfficeoftheAttorneyGeneral425FifthAvenueNorthNashville,Tennessee37243 ATTORNEYSFORDEFENDANT/APPELLEE  REVERSEDANDREMANDEDXX  WILLIAMB.CAIN,JUDGE @;67  8,dd8     {,OPINION  ,{  E" ,X4` XDpX,XXDpXE 7,  Thiscaseconcernsasuitforrefund,underTennesseeCodeAnnotated 3 section6711803,ofexcisetaxesassessedasaresultofanauditconductedby   theTennesseeDepartmentofRevenuesfieldauditdivisionandcoveringtax + { years19891991.Thetaxpayer,L.M.BerryandCompany(LMB)soughtthe    refundof$96,605.00inexcisetax,assessedondividendsdeclaredbyITTWorld s  Directories,Inc.(ITTWD)andPromedia,S.A.(Promedia)andpaidtoLMB. g  LMBpaidtheassessedtaxandbroughtsuitforrefundallegingthatunder   TennesseesversionoftheUniformDistributionofIncomeforTaxPurposes _ Act,seeTenn.CodeAnn.674801etseq.;thedividendswerenottaxableas S businessearningsundersection674804.InadditionLMBarguedthatthe  inclusionofthesedividendsinLMBsincomeforexcisetaxpurposeswas K inconsistentwiththeUnitedStatesConstitutionsCommerceclauseandits ? FourteenthAmendmentDueProcessprovisions.Oncrossmotionsforsummary  judgment,thechancellordismissedLMBscomplaint,holdingasfollows: 7 8  Thecourtfindsthatthedividendsreceivedbytheplaintiff +  fromitsaffiliatesITTWDandPromediaduringtheaudit  C! periodatissueare businessearningswithinthemeaningof  "[" T.C.A.674804,andaresubjecttoapportionmentto ##s# TennesseeforpurposesoftheTennesseeExciseTax,T.C.A. ;$$ 674801etseq.TheCourtfurtherfindsthatthe S% % Commissionersapplicationofthestatutoryapportionment k&!& formulatotheseearningshasnotcausedextraterritorial '"' valuetobetaxed,andthattheassessmentisthusin (#( accordancewiththeDueProcessClauseandCommerce )%) ClauseoftheUnitedStatesConstitution.*&*   Fromthegrantofsummaryjudgmentbelow,LMBappeals. ,K(,  I.0  TENNESSEEFRANCHISEANDEXCISETAXAND UNITARY C0+0 BUSINESSTHEORY [1,1 T$ T$   SincethiscaseconcernsbothTennesseesstatutorydefinitionof 3.3  businessearningsaswellastheconstitutionalapplicationofunitarybusiness /505 theory,anydiscussionofthefactsnecessitatesanexplanationofhowthistaxlaw 6#27 developed.TheCourtapprovestheconcisesummaryofTennesseesfranchise w839 andexcisetaxsysteminthebriefonbehalfofthecommissioner.Appellee  writes: T 8   0 Thetaxatissueinthiscase,theexcisetax,hasbeenthe H majortaximposedoncorporationsbytheStateofTennessee  ` forover75years.Originallyenactedin1923,theexcisetax, ( x T.C.A.674801,etseq.,wasmostrecentlyredraftedand @  adoptedin1976.Theexcisetaxisupontheprivilegeof X  engaginginbusinessinTennesseeincorporateform,First p   AmericanNatlBankv.Olsen,751S.W.2d417(1987),   appealdismissed,485U.S.1001,108S.Ct.1460,99L.Ed.   2d691(1988);TennesseeGrowers,Inc.v.King,682S.W.2d   203(Tenn.1984)andisimposedattherateof6% ofthenet   earningsforthenextprecedingfiscalyearforbusinessdone 8 inthisstate.T.C.A.674806(a).Theothermajortaxon P corporations,thefranchisetax,isalsoaprivilegetax upon h theprivilegeofdoingbusinessincorporateforminthis 0 state,T.C.A.674903(a),andimposedattherateof$.25 H per$100ofissuedandoutstandingstock,surplusand ` undividedprofits.T.C.A.674904(a).x   8   0 Intheeventthatacorporationengagesinbusinessin  Tennesseeaswellasotherstates,itisentitledtoapportionits  incomeandpropertyforpurposesofdeterminingitstax ( liability.T.C.A.674809(excisetax)and674909 @ (franchisetax).Bothtaxesareconsideredintandemand  X construedtogetherasoneschemeoftaxation.American  !p BembergCorp.v.Carson,188Tenn.263,272,219S.W.2d 8" 169,173(1949);FirstAmericanNatlBankv.Olsen,751 P# S.W.2dat421.Astatedoespossessinherentpowertotaxa h$ nondomiciliarycorporationsactivitiestocompensatethat %  Stateforthe protection,opportunitiesandbenefitsthe &!  StateconfersonthecorporationsactivitieswithintheState. '#! AlliedSignal,Inc.v.Director,504U.S.768,112S.Ct.2251, ($" 2258,119L.Ed.2d133(1992).)0%#   8 $  TheAlliedSignalcase,citedabove,isconsideredoneofthepantheon (-x(& ofcaseschartingtheinterplaybetweenastatesabilitytotaxinterstateentities .*( doingbusinessinthestateononehand,andtheprovisionsoftheCommerce p0+* ClauseandtheDueProcessClauseoftheUnitedStatesConstitutiononthe 2d-, other.SeeArt.I,8,U.S.Const.;U.S.Const.amend.XIV.SeealsoASARCO, 3/. Inc.v.IdahoStateTaxCommn,458U.S.307,102S.Ct.3103,73L.Ed.2d787 \500 (1982);ContainerCorp.ofAmericav.FranchiseTaxBd.,463U.S.159,103 7P22 S.Ct.2933,7L.Ed.2d545(1983). 834 Ї  AlliedSignalconcernedNewJerseysattempttotaxAlliedSignal  Corp.,aDelawarecorporationdoingbusinessinallfiftystates,forincome T receivedfromthesaleofstockinaNewJerseycorporationprincipallylocated H inNewYork.JusticeKennedy,writingforthemajority,providedthefollowing   discussionoftheunitarybusinessprinciple: @  8   0 Becauseofthecomplicationsanduncertaintiesin  4  allocatingtheincomeofmultistatebusinessestotheseveral  L  States,wepermitStatestotaxacorporationonan d  apportionableshareofthemultistatebusinesscarriedonin ,|  partinthetaxingstate.Thatistheunitarybusinessprinciple. D  Itisnotanovelconstruct,butonethatweapprovedwithin \  ashorttimeafterthepassageoftheFourteenth t AmendmentsDueProcessClause.Wenowgiveabrief  summaryofitsdevelopment.   8   0 WhenStatesattemptedtovaluerailroadortelegraph $ companiesforpropertytaxpurposes,theyencounteredthe < difficultythatwhatmakessuchabusinessvaluableisthe T enterpriseasawhole,ratherthanthetrackorwiresthat l happentobelocatedwithinaStatesborders.TheCourt 4 heldthatconsistentwiththeDueProcessClause,aState L couldbaseitstaxassessmentsupon theproportionatepart d ofthevalueresultingfromthecombinationofthemeansby | whichthebusinesswascarriedon,avalueexistingtoan   appreciableextentthroughouttheentiredomainof ! operation.AdamsExpressCo.v.OhioStateAuditor,165 " U.S.194,220221,17S.Ct.305,309,41L.Ed.683(1987) #, (citingWesternUnionTelegraphCo.v.AttorneyGeneralof $D  Massachusetts,125U.S.530,8S.Ct.961,31L.Ed.790  &\!! (1888))...$'t""   8   0 AdamsExpressrecognizedthattheprinciplesthatpermit T)$$ aStatetolevyataxonthecapitalstockofarailroad, l*%% telegraph,orsleepingcarcompanybyreferencetoitsunitary +&& businessalsoallowproportionalvaluationofaunitary ,'' businessinenterprisesofothersorts.AstheCourt -)( explained: Thephysicalunityexistingintheformeris .*) lackinginthelatter;butthereisthesameunityintheuseof /4+* theentirepropertyforthespecificpurpose,andtherearethe 0L,+ sameelementsofvaluearisingfromsuchuse.165U.S.,at 2d-, 221,17S.Ct.,at309.,3|.-   8   0 Theunitarybusinessprinciplewaslaterpermittedfor \50/ statetaxationofcorporateincomeaswellaspropertyand t610 capital.Thus,inUnderwoodTypewriterCo.v. 721 Chamberlain,254U.S.113,120121,41S.Ct.45,47,65 832 L.Ed.165(1920),weexplained:9 53   Ї8  80    Theprofitsofthecorporationwerelargelyearnedby  aseriesoftransactionsbeginningwithmanufacturein  ConnecticutandendingwiththesaleinotherStates. 0 Inthisitwastypicalofalargepartofthe H manufacturingbusinessconductedintheState.The  ` legislatureinattemptingtoputuponthisbusinessits ( x fairshareoftheburdenoftaxationwasfacedwith @  impossibilityofallocatingspecificallytheprofits X  earnedbytheprocessesconductedwithinitsborders. p  It,therefore,adoptedamethodofapportionment   which,forallthatappearsinthisrecord,reached,and   wasmeanttoreach,onlytheprofitsearnedwithinthe   State. 0 0  8   0 Asthesecasesmakeclear,theunitarybusinessruleisa P recognitionoftwoimperatives:theStateswideauthorityto h deviseformulaeforanaccurateassessmentofacorporations 0 intrastatevalueorincome;andthenecessarylimitonthe H Statesauthoritytotaxvalueorincomethatcannotin ` fairnessbeattributedtothetaxpayersactivitieswithinthe x State.   AlliedSignal,Inc.v.Director,Div.OfTaxation,504U.S.768,77880,112S.Ct.  2251,22582259,119L.Ed.2d533,(1992). d   Asistrueofthecaseatbar,theSupremeCourtstatedinAlliedSignal, !  [i]tisthissecondcomponent,thenecessityforalimitingprinciple,that P# underliesthiscase.AlliedSignal,504U.S.,at780,112S.Ct.,at2259. $D    Regardingaworkingstatutoryandregulatorydefinitionof business <(#$ earnings,ourstatestatutesandrulesprovidethefollowing: )0%& 8  "Businessearnings"meansearningsarisingfrom +&( transactionsandactivityintheregularcourseofthe ,') taxpayer'stradeorbusinessorearningsfromtangibleand -)* intangiblepropertyiftheacquisition,use,managementor .*+ dispositionofthepropertyconstitutesanintegralpartofthe /4+, taxpayer'sregulartradeorbusinessoperations.Inessence, 0L,- earningswhicharisefromtheconductofthetradeortrades 2d-. orbusinessoperationsofataxpayerare"businessearnings," ,3|./ andthetaxpayermustshowbyclearandcogentevidence D4/0 thatparticularearningsareclassifiableasnonbusiness \501 earnings....t612   Tenn.CodeAnn.674804(a)(1) 834 Єand 9 55 8  Dividendsarebusinessearningswherethestockwithrespect  towhichthedividendsarereceivedarisesoutoforwas  acquiredintheregularcourseofthetaxpayerstradeor 0 businessoperationsorwherethepurposeforacquiringand H holdingthestockisrelatedtoorincidentaltosuchtradeor  ` businessoperations.( x   Tenn.Comp.R.&Regs.R.132061.23(d)(1991).Theassessmentinquestion X  wasmadebythecommissionerallegedlypursuanttothisstatutoryand  L  regulatoryauthority.Sincethiscasecomestousonappealfromthegrantof   summaryjudgmentoncrossmotions,andsincethelitigantsbeforeusdispute D  onlythelegaleffectofundisputedfacts,thereviewofthetrialcourtsactionis 8 denovoupontherecordwithnopresumptionofcorrectnessonappeal.See  _Cowden_Ԁv._Sovran_ԀBank/CentralSouth,816S.W.2d741,744(Tenn.1991);_Gehl_ 0 Corp.v.Johnson,991S.W.2d246,248(Tenn.Ct.App.1998);seealsoByrdv. $ Hall,847S.W.2d208(Tenn.1993).Thustheissueframedbythe unitary x businesstheoryandTennesseesdefinitionofbusinessincomeiswhetherthe l undisputedfactsbelowestablishthat_LMB_,_ITTWD_Ԁand_Promedia_Ԁeitheroperate  asaunit,orareatleastrelatedenough,sothatdividendsreceivedasaresultof d _LMB_sstockholdingsinthelattertwocorporationscanbetaxedasincome  X  relatedorincidentalto_LMB_syellowpagessolicitationinTennessee.With !! theissuesthusestablished,theCourtnowmustanalyzetheundisputedfactswith P## regardtothenatureandoperationofthethreebusinessentitiestodeterminetheir $D % relationship.Attheendofthisanalysisinthisdenovoreview,thepropertest &!' fordeterminingintegrationandinterrelationwillbeascertainedandappliedto <(#) thefactstoevaluatethelegalcorrectnessofthechancellorsaction.SeeTenn. )0%+ R.App.P.13(a). +&-    (-x(/  II.THENATUREOFLMBSBUSINESS  .*1   LMB,aGeorgiacorporationwithitsprincipalplaceofbusinessin p0+3 Ohio,sells YellowPagesadvertisingtocommercialcustomersinseveralstates 2d-5 includingTennessee.Inmosttransactions,LMBactsasasalesagentbetween 3/7 localtelephonecompaniesandcommercialtelephonesubscriberswithinthose \509 companiesserviceareas.LMBreceivescommissionsfromthetelephone 7P2; companiesontheeventualadvertisingcontracts.Oncertainadvertising 83= contractsrequiringpublishingof YellowPages,LMBgenerallyoutsources  thepublishingportionofitsagreement,chargingahighercommissiontothe T telephonecompanytocoverthecost.Theadvertisingcontractsbetween H telephonecompanyandcommercialcustomersarerenewedannually,whereas   thecommissioncontractbetweenLMBandthetelephonecompanyhaveafive @  tosevenyearterm.Occasionally,LMBwillselladvertisingspacetoacustomer  4  outsideatelephonecompanysserviceareaandbillthatcustomerdirectly.   Throughasubsidiary,LMBalsofurnishes nationalyellowpagesservices, ,|  underwhichanadvertisermaydealwithasinglesalesagent(LMB)inplacing   advertisementsinyellowpagesnationally. t  III.THENATUREANDFORMATIONOF_ITTWD_ԀAND_PROMEDIA_      In1966,_LMB_,thenaMarylandcorporationheadquarteredinOhio,and ` InternationalTelephoneandTelegraphCorporation(ITT),aDelaware T corporation,formedanotherDelawarecorporationITTWorldDirectories,Inc.  (_ITTWD_)forthepurposeofdevelopingatelephonedirectorybusinessinforeign L markets.Asevidencedbytheundisputedportionsof_LMB_s Statementof @  MaterialFactsinsupportofPlaintiffsMotionforSummaryJudgment:  " T( ,X4` hDpX ,X4` XDpXT8  13. _ITTWD_,whichmaintainsitsprincipalofficesin 8"$ Brussels,Belgium,createdanumberofinternational P#% subsidiariesor units,toselltelephonedirectoryadvertising h$& similartothe yellowpages.Eachofthese unitswasa % ' foreigncorporationorassociation.Generally,these units &!( operatedwithin,andwereconfinedto,specificcountries, '#) sincemostforeigntelephonecompanieswereownedby ($* foreigngovernments.Allsuch unitsoperatedsolely )0%+ overseas.*H&,   8  14. ITTandLMB,actingoutsideofITTWD,alsocreateda (-x(. numberof unitsthroughawhollyownedsubsidiaryof @.)/ ITT,InternationalStandardElectricCorp.,aDelaware X/*0 corporation.OneofthesewasPromedia,S.A.,aBelgium p0+1 corporation....1,2      @  @0  @  @  @8  @ *** 3/4  [8  17. Duringtheauditperiod(January1,1989through 4 05 December31,1991),ITTWDoperatedunitsinBelgium,UK, 5816 Holland,Ireland,Portugal,PuertoRico,Japan,Turkey,the 7P27 VirginIslands,Ecuador,FranceandGermany.ITTWDand 8h38 itsunitsemployedmorethan2500employeesworldwide, 0949 withnonelocatedinTennessee.Between1986and1996,  ITTWDhadfewerthan12employeesintheUnitedStates,  allofwhomwerelocatedatsmallITTWDofficesinNew 0 YorkorNewJersey.H   8  18. _ITTWD_Ԁhadnoemployees,facilitiesorpropertyin ( x Tennesseeatanytime.@    8  19. _Promedia_ԀoperatedatalltimesonlyinBelgium;ithad p  noemployees,facilitiesorpropertyinTennesseeatanytime.    Z-   0     8      @      H! _ IV.THEINTERRELATIONOFLMB,ITTWDANDPROMEDIA    Z( ,X4` " hDpX ,X4` hDpXZ  TheundisputedfactsdisclosethefollowingwithregardtoLMBs t relationshipwithITTWDandPromedia.LMBhelda20%stockinterestin h ITTWDandPromediarespectively.LMBheldoneoffiveseatsonITTWDs   boardofdirectors.Inaddition,consideringLMBs StatementofMaterialFacts ` inSupportofPlaintiffsMotionforSummaryJudgmentandexcisingthe T portionstowhichthecommissionerobjects,wefindthefollowingfactual  statementsintherecord: L    0 21.8 Alldecisionsregardingtheoperationsof @ _ITTWD_Ԁand_Promedia_,includingthe  X businessplansandstrategicdirectionof  !p _ITTWD_Ԁand_Promedia_,arecontrolledby 8" ITTappointeddirectorsandby_ITTWD_ P#  officersandweresocontrolledbythem h$! duringtheauditperiod.% "    (5h83 ! !   0 22.8 ...[_T]he_ԀCFOandChairmanof_LMB_Ԁserved '#$ asassistantcontrolleranddirector, ($% respectively,for_ITTWD_....)0%&      0 23.8 _ITTWD_Ԁgenerallyentersinto fullservice ,`'( contractswithforeigntelephonecompanies (-x() underwhich_ITTWD_Ԁsellsadvertising, @.)* publishesthedirectory,andinvoicesand X/*+ collectsfromthecustomer/advertiser.p0+,      0 24.8 _ITTWD_Ԁand_Promedia_Ԁdidnotsell yellow 2-. pagesadvertisingfortheUnitedStates 3// directories,nordid_ITTWD_Ԁor_Promedia_ 4 00 haveanytelephonecompanycustomersin 5811 commonwith_LMB_.7P22    0944    0 25.8 Theremayhavebeeninternational  businesseswhoobtained yellowpages  advertisingthrough_LMB_Ԁfordirectories 0 publishedintheUnitedStatesandwhoalso H obtainedsimilaradvertisingthrough_ITTWD_  ` fordirectoriespublishedoverseas. ( x However,_LMB_Ԁand_ITTWD_Ԁdidnotsellfor @  oneanother,nordidtheyshareorexchange X  telephonesubscriberlistsorsalescontact p  lists.      Otherthanthepaymentofdividends(specificallythe1991payment D  totaling$12,000,000from_ITTWD_Ԁand$1,650,000from_Promedia_,whichwere 8 theobjectsassessed)andthecorporategenealogylistedabove,theonly  connectionremainingbetween_LMB_,_ITTWD_Ԁand_Promedia_Ԁisthefactthat 0 duringtheauditperiod,sixof_LMB_sexecutiveswereonloanto_ITTWD_Ԁforthe $ purposeoftraining_ITTWD_ssalesstaff.Theseexecutiveswere loanedforan x averageofoneyearperperson.Theywerepaidby_LMB_,whowasreimbursed l by_ITTWD_.    Theupshotof_LMB_sargumentbelowandonappealisthatthe  X  unitarybusinesstheoryasrelatedbythiscourtinLouisDreyfus,infra,is !  recognizedinthecaseatbarmorebytheabsenceofitscomponentsthanbytheir P#" presence.Specifically,inadditiontothoselistedabove,_LMB_Ԁurgedthe $D $ followingundisputedfactsinsupportofthatcontention: &!& Z( ,X` " hDpX ,X4` " hDpXZ  Ӏ1.8 _LMB_Ԁdidnotprovideaccounting,legal,data <(#( processing,researchanddevelopment,engineering,or T)$) planningservicestoeitherITTWDand_Promedia_;l*%* : :  Ѐ2.8 _LMB_Ԁdidnotusethesamedataprocessingsystemsas +&+ thesecorporations;,', : :  Ѐ3.8 _LMB_Ԁdidnotusethesamesystemofaccountingas -)- thesecorporations;.*. : :  Ѐ4.8 _LMB_Ԁandthesecorporationsdidnotadvertiseforone /4+/ another;0L,0 : :  Ѐ5.8 _LMB_Ԁdidnotprepareincometaxreturnsforthese 2d-1 corporations;,3|.2 : :  Ѐ6.8 _LMB_ԀdidnotusethesameCPAfirmasthese D4/3 corporations;\504 : :  Ѐ7.8 _LMB_Ԁinternalauditorsdidnotauditthebooksand t615 recordsofthesecorporations;726 : :  Ѐ8.8 _LMB_,_ITTWD_ԀandPromediadidnotshareacommon 837 workerscompensationinsurancepolicy;9 58 : :  Ѐ9.8 _LMB_Ԁprovidednopurchasingorservicefunctionfor  ITTWDor_Promedia_; : :  Ѐ10.8 _LMB_Ԁdidnotconductresearchanddevelopmentfor 0 thesecorporations;H : :  Ѐ11.8 _LMB_Ԁdidnotsellproductstothesecorporations; ` : :  Ѐ12.8 _LMB_Ԁdidnotpurchaseproductsfromthese ( x corporations;@  : :  Ѐ13.8 _LMB_Ԁandthesecorporationsdidnotloanfundstoone X  anotherbyassignmentofaccountsreceivable;p  : :  Ѐ14.8 _LMB_Ԁandthesecorporationsdidnotborrowjointly;  : :  Ѐ15.8 _LMB_Ԁdidnotguaranteeanydebtsofthesecorporations,   nordidITTWDorPromediaguaranteeanydebtsof   _LMB_;  : :  Ѐ16.8 _LMB_ԀdidnotpledgeitsITTWDstockascollateralfor 8  itsownborrowing;P : :  Ѐ17.8 _LMB_Ԁnevercommingledoperatingfundsorother h moniesoraccountswith_ITTWD_Ԁor_Promedia_;0 : :  Ѐ18.8 No_LMB_Ԁemployeewasauthorizedtoissuedraftson H anyITTWDor_Promedia_Ԁbankaccounts,norwereany ` ITTWDorPromediaemployeesauthorizedtoissue x draftsonanyLMBbankaccount; : :  Ѐ19.8 _LMB_Ԁandthesecorporationsdidnotshareanycommon  selling,manufacturing,storageortransportation  facilities;( : :  Ѐ20.8 _LMB_Ԁdidnotexchangefixedassetswiththese @ corporations; X : :  Ѐ21.8 _LMB_Ԁdidnotnegotiateorapprovecontractsforthese  !p corporations;8" : :  Ѐ22.8 AlthoughtheCFOandChairmanofLMBservedas P# assistantcontrolleranddirector,respectively,for h$ ITTWD,therearenootherindividualswhowere %  officers,directors,oremployeesofbothLMBand &! _ITTWD_;'#  : :  Ѐ23.8 _LMB_ԀandITTWDdonothavethesamerevenueand ($! expensestructure.Generally,_LMB_srevenuesare )0%" derivedfromsalesofadvertisingby_LMB_Ԁasagentfor *H&# thetelephonecompany,withthetelephonecompany ,`'$ performingallcustomer/advertiserbillingand (-x(% collectionand,inmanyinstances,withthetelephone @.)& companyundertakingallpublishinganddistributionof X/*' directories.Bycontrast,ITTWDgenerallyentersinto p0+(  fullservicecontractswithforeigntelephone 1,) companiesunderwhich_ITTWD_Ԁsellsadvertising, 2-* publishesthedirectory,andinvoicesandcollectsfrom 3/+ thecustomer/advertiser.4 0, : :     ThecommissionerseekstoassertthattheincomederivedbyLMB 8h3/ isatleastanoperationalinvestmentassetifnottheincomeofaunitarybusiness 9 51 engagedinthemarketingof yellowpagesadvertisingworldwide.The  commissionerpointstothesharedemployeesandofficers,thegenealogyof T ITTWDandPromediareferencedabove,andthesimilarbusinesspurposeto H supportthepremisethatLMBsinvestmentwasnotmerelypassive,butactually   anoperationalfunctionofLMBsbusinessinTennessee. @   V.THEPROPERSTANDARD     Itisthetaxpayersassertioninthecaseatbar,thatthe ,|  commissionersattempttotaxiswelloutsideTennesseesauthorityunderthe   unitarybusinessprinciple.Insupportofthatassertion,LMBwouldpointthe t courttoourdecisiononLouisDreyfusCorp.v.Huddleston,933S.W.2d460 h (Tenn.Ct.App.1996).    Thecommissionerattemptstosimplifythediscussionbelowandon T appealtosuggestoneoftwoalternativetests.TheStatewouldarguethatthe  persuasivepowerofthe unitarybusinessprincipleasdiscussedinLouis L DreyfusCorp.andAlliedSignal,supra,waserodedinAlliedSignaltoallow @  taxationofanyinvestmentofanoperationalnature.Tosupportthisposition,the  " Statequotesthefollowinglanguage: 8"$ 8  0 Weagreethatthepayeeandthepayor[ofdividends] #,& neednotbeengagedinthesameunitarybusinessasa $D ' prerequisitetoapportionmentinallcases.Container  &\!( Corp.saysasmuch.Whatisrequiredinsteadisthatthe $'t") capitaltransactionsserveanoperationalratherthanan <(#* investmentfunction....T)$+ : :  8  0 Tobesuretheexistenceofaunitaryrelationbetween +&- thepayorandthepayeeisonemeansofmeetingthe ,'. constitutionalrequirement.Thus,inASARCOand -)/ Woolworthwefocusedonthequestionwhethertherewas .*0 sucharelation.Wedidnotpurport,however,toestablish /4+1 ageneralrequirementthattherebeaunitaryrelation 0L,2 betweenthepayorandthepayeetojustifyapportionment, 2d-3 nordowedosotoday.,3|.4 : :  AlliedSignal,supra,at787,112S.Ct.at2263.Thisposition,however,begsthe \506 questionsthatbothallegedtestsattempttoanswer,i.e., 7P28 8 1.Doesthecapitaltransactionallegedlysubjecttotax 83: addvaluetotheinterstatebusinessasawholeaswellas 9 5; tothevaluewithinthejurisdictionproviding protection,  _oppor_Ԅ_tunities_,andbenefitstothetaxpayer?See  Wisconsinv.J.C.PenneyCo.,311U.S.435,444,61S.Ct. 0 246,250,85L.Ed.267(1946).H : :  and  ` 8 2.Doestherealizationofthatcapitalbearsucha ( x functionaloroperationalrelationshiptothetaxpayers @  businessandminimumconnectionwiththejurisdictionas X  tomaketaxationofthatassetconstitutionallyproper.See p  generally,ContainerCorp.ofAmericav.FranchiseTax   Bd.,463U.S.159,170,103S.Ct.2933,2942,7L.Ed.2d   545(1983).  : :  TheUnitedStatesSupremeCourtstatedthisinquirybest: 8  ` 8 Althoughourmoderndueprocessjurisprudencerejectsa h rigid,formalisticdefinitionofminimumconnection,we 0 havenotabandonedtherequirementthat,inthecaseofa H taxonanactivity,theremustbeaconnectiontothe ` activityitself,ratherthanaconnectiononlytotheactor x thestateseekstotax. : :  AlliedSignal,supra,at778,112S.Ct.at2258(citingQuillCorp.v.North  Dakota,504U.S.298,306308,112S.Ct.1904,19091910,119L.Ed.2d91 d (1992)).  X  ThecommissionerarguesthatLouisDreyfusisdistinguishedonits P# factsfromthecaseatbar.InsofarasthecourtinLouisDreyfusappliedthesame $D  principlesenunciatedbytheUnitedStatesSupremeCourtinitslonglineof &!"  unitarybusinesscases,includingAlliedSignal,supra,andapplicabletothe <(#$ caseatbar,wefindthecommissionersargumentunpersuasive.SaystheCourt: )0%& 8  0 Thecourtshavedevisedseveraltestsfordetermining +&( whetherabusinessisunitary.Theearliestofthese,the ,') so-called"threeunities"testrequiredthecourtsto -)* examinetheunityofownership,theunityofoperationas .*+ evidencedbycentralpurchasing,advertising,accounting, /4+, andmanagement,andtheunityofacentralizedexecutive 0L,- forceandgeneralsystemofoperation.ButlerBros.v. 2d-. _McColgan_,315U.S.501,508,62_S.Ct_.701,704-05,86 ,3|./ _L.Ed_.991(1942);PetersonMfg.Co.v.State,779 D4/0 S.W.2dat786;_W.S._ԀDickeyClayMfg.Co.v.Dickinson, \501 200Tenn.at34-35,289S.W.2dat537.Thesecondtest t612 employedbytheUnitedStatesSupremeCourtrequires 723 thecourtstoexaminetherecordforevidenceof 834 functionalintegration,centralizationofmanagement,and 9 55 economiesofscale._F.W._ԀWoolworthCo.v.Taxationand  Revenue_Dep't_,458U.S.at364,102_S.Ct_.at3135;Mobil  OilCorp.v.CommissionerofTaxes,445U.S.at438,100 0 _S.Ct_.at1232.Othercourtshaveusedthe"dependency H and_contri_Ԅ_bution_"testtodeterminewhetherthebusiness  ` componentsunderconsiderationcontributetoeachother ( x andtheoperationofthebusinessasawhole.A.M.Castle @  &Co.v.FranchiseTaxBd.,36Cal.App.4th1794,43 X  Cal.Rptr.2d340,346(1995);Ramsay,_Scarlett_Ԁ&Co.v. p  Comptroller,302Md.825,490A.2d1296,1302(1985);   SilentHoist&CraneCo.v.Director,Div.ofTaxation,   100N.J.1,494A.2d775,784(1985).Thesetestsarenot   mutuallyexclusivebutratherarealternativewaysto   determinewhetherthecomponentsofthebusiness 8  operateunder"anumbrellaofcentralmanagementand P controlledinteraction,"ExxonCorp.v.WisconsinDep't h ofRevenue,447U.S.at224,100S.Ct.at2120.0 : :  8  0 Nosinglefactoriscontrollingunderanyofthetests. ` Instead,thecourtsexaminethesefactorsincombination x todeterminewhetherthebusinessisunitary.Sincestates  mayonlytaxvaluehavingsubstantialconnectionwiththe  state,thecourtsmustconsidernotonlytherelationship  betweenthenon-residentbusinessandthenon-resident ( componentwhoseincomeissoughttobetaxedbutalso @ therelationshipbetweenthein-statecomponentandthe  X non-residentcomponent.SeeCentral  !p National-Gottesman,Inc.v.Director,Div.ofTaxation,14 8" N.J.Tax545,556-57(_Tax.Ct_.1995);InreIncomeTax P# ProtestofGriffinTelevision,Inc.(GriffinTelevision,Inc. h$ v.Stateexrel.OklahomaTaxComm'n),877P.2d588, %  593(Okla.1994).&! : :  LouisDreyfusCorp.v.Huddleston,933S.W.2d460,468(Tenn.Ct.App.1996). ($!  Thestatealsoarguesthatitsinterpretationofthefactsunderthe ,`'%  operationalinvestmentstandardwouldtrumptheabundanceofevidence -)' regardingtheabsenceofaunitarybusiness.Inthisattempt,however,the X/*) commissionerseemstoechoNewJerseysargumentinAlliedSignal. 0L,+  SaidtheSupremeCourt: 5811 8 NewJerseydoesnotappeartodisputethebasic 723 propositionthatastatemaynottaxvalueearnedoutside 834 itsborders.Itcontendsinsteadthatallincomeofa 9 55 corporationdoinganybusinessinaStateis,byvirtueof  commonownership,partofthecorporationsunitary  businessandapportionable.NewJerseyssweeping 0 theorycannotbereconciledwiththeconceptthatthe H ConstitutionplaceslimitsonaStatespowertotaxvalue  ` earnedoutsideofitsborders.Tobesure,ourcasesgive ( x Stateswidelatitudetofashionformulaedesignedto @  approximatetheinstateportionofvalueproducedbya X  corporationstruly_multistate_Ԁactivity.Butthatisfar p  removedfromNewJerseystheorythatanybusinessin   theState,nomatterhowsmallorunprofitable,subjects   allofacorporationsoutofstateincome,nomatterhow   discrete,toapportionment.  : :  AlliedSignal,supra,at784,112_S.Ct_.at2261(citationsomitted).Weare P equallyunpersuaded.   VI.ANALYSIS  <  Theunavoidableconclusionisthatthefactsaspresentedshowneither  aunitarybusinessonthepartof_LMB_,_ITTWD_Ԁand_Promedia_,noranoperational 4 orfunctionalinvestmentonthepartof_LMB_Ԁin_ITTWD_Ԁand_Promedia_.Neither ( partydisputesthefactsensitivenatureofanytaxationinquiry.Taxassessments | arepresumedvalidunlessthetaxpayerprovesbyclearandcogentevidencethat  !p thecommissionerhascausedextraterritorialvaluetobetaxed.SeeContainer "  Corp.OfAmericav.FranchiseTaxBd.,463U.S.159,170,103_S.Ct_.2933, h$" 2942,7_L.Ed_.2d545(1983);_Stratton_Ԁv.Jackson,707S.W.2d865,867(Tenn.  &\!$ 1986);AceofClubsv._Huddleston_,872S.W.2d679,681(Tenn.Ct.App.1993); '#& LouisDreyfusCorp.v._Huddleston_,933S.W.2d460(Tenn.Ct.App.1996).In T)$( ourdenovoreviewwefindclearandcogentproofthatextraterritorialvaluehas *H&* beentaxed.Theundisputedfactsintherecordbeforeussuggestnounitary ,', relationshipbetweenthetaxpayerandtheentitiesconcernedandnooperational @.). investment. /4+0  Evenifonecouldsaythatthebirth,natureandinterplayofexecutive ,3|.4 officersinthesecorporationscouldamounttoownershipandcontrolof_ITTWD_ 4 06 and_Promedia_Ԁby_LMB_ԀanditsparentBellSouthEnterprises,thisownershipand t618 controlisbutoneofmanycircumstanceswhichmaybeexaminedtoshow 8h3: Constitutionaltaxability._LMB_Ԁshowedbelowthattheentitiesinvolvedhadvery 9 5< littleincommon,muchlessinkind.Theireconomieswerefunctionallyseparate  entities.Though_ITTWD_Ԁand_Promedia_Ԁmayhavebeenbornfrom_LMB_ԀandITT, T neitherowesitscontinuedexistenceto_LMB_.Underthecircumstances,wefind H ithardtobelievethat_ITTWD_,_Promedia_Ԁand_LMB_Ԁarefunctionallyintegrated   underanystandard. @   VII.CONCLUSION      Undertheundisputedfactsofthiscase,thedividendsearnedby_LMB_   arenottaxablebyTennessee.Thechancerycourtsjudgmenttothecontrary \  shouldbeandisherebyreversed.Thecaseisremandedwiththechancellor P directedtoentersummaryjudgmentinfavorof_LMB_Ԁintheamountofitsrefund  plusanyinterestproperlyaccruedandowing,andforsuchfurtherproceedings H asmaybenecessary.CostsonappealaretaxedagainsttheStateofTennessee. < #, 7E#   0     8   ______________________________ +{   0     8   WILLIAMB.CAIN,JUDGE = CONCUR: s   __________________________________ ## BENH.CANTRELL,P.J.,M.S. $ $ __________________________________ 'A#' WILLIAMC.KOCH,JR.,JUDGE