text:
    WESTINGHOUSE ELECTRIC CORP. v. TULLY et al.
    No. 81-2394.
    Argued November 1, 1983
    Decided April 24, 1984

      Blackmun, J., delivered the opinion for a unanimous Court.

      Paul M. Dodyk argued the cause for appellant. With him on the briefs was David A. Barrett.

      Peter H. Schiff argued the cause for appellees. With him on the brief were Robert Abrams, Attorney General of New York, and Francis V. Dow, Assistant Attorney General.

        George Deukmejian, Attorney General, and Charles C. Kobayashi, Deputy Attorney General, filed a brief for the State of California as ami-cus curiae.

   Justice Blackmun

delivered the opinion of the Court.

In this case, we are confronted with the question of the constitutionality of a franchise tax credit afforded by the State of New York to certain income of Domestic International Sales Corporations.

H

The tax credit in issue was enacted as part of the New York Legislature’s response to additions to and changes in the United States Internal Revenue Code of 1954 effectuated by the Revenue Act of 1971, Pub. L. 92-178, §§501-507, 85 Stat. 535. In an effort to “provide tax incentives for U. S. firms to increase their exports,” H. R. Rep. No. 92-533, p. 9 (1971); S. Rep. No. 92-437, p. 12 (1971), Congress gave special recognition to a corporate entity it described as a “Domestic International Sales Corporation” or “DISC.” §§ 991-997 of the Code, 26 U. S. C. §§ 991-997. A corporation qualifies as a DISC if substantially all its assets and gross receipts are export-related. §§ 992(a), 993. Under federal law, a DISC is not taxed on its income. §991. Instead, a portion of the DISC’S income — labeled “deemed distributions” — is attributed to the DISC’s shareholders on a current basis, whether or not that portion is actually paid or distributed to them. § 995. Under the statutory provisions in effect during the calendar years 1972 and 1973 (the tax years in question in this case), 50% of a DISC’S income was deemed distributed to its shareholders. 85 Stat. 544. Taxes on the remaining income of the DISC — labeled “accumulated DISC income” — are deferred until either that accumulated income is actually distributed to the shareholders or the DISC no longer qualifies for special tax treatment. § 996 of the Code, 26 U. S. C. §996.

Enactment of the federal DISC legislation caused revenue officials in the State of New York some concern. New York does not generally impose its franchise tax on distributions received by a parent from a subsidiary; instead, the subsidiary is taxed directly to the extent it does business in the State. See N. Y. Tax Law §208.9(a)(1) (McKinney 1966). Given the State's tax structure, had New York followed the federal lead in not taxing DISCs, a DISC’S income would not have been taxed by the State. See New York State Division of the Budget, Report on A. 12108-A and S. 10544, pp. 1, 5-6 (May 23, 1972), reprinted in Bill Jacket of 1972 N. Y. Laws, ch. 778, pp. 13, 17-18 (Budget Report). A budget analyst reported to the legislature that if no provision were made to tax DISCs, New York might suffer revenue losses of as much as $20-$30 million annually. Id., at 20. On the other hand, the analyst warned that state taxation of DISCs would discourage their formation in New York and also discourage the manufacture of export goods within the State. Id., at 18.

With these conflicting considerations in mind, New York enacted legislation pertaining to the taxation of DISCs. 1972 N. Y. Laws, chs. 778 and 779 (McKinney), codified as N. Y. Tax Law §§208 to 219-a (McKinney Supp. 1983-1984). The enacted provisions require the consolidation of the receipts, assets, expenses, and liabilities of the DISC with those of its parent. § 208.9(i)(B). The franchise tax is then assessed against the parent on the basis of the consolidated amounts. In an attempt to “provide a positive incentive for increased business activity in New York State,” however, the legislature provided a “partially offsetting tax credit.” Budget Report, at 18. The result of the credit is to lower the effective tax rate on the accumulated DISC income reflected in the consolidated return to 30% of the otherwise applicable franchise tax rate. The DISC credit, significantly, is limited to gross receipts from export products “shipped from a regular place of business of the taxpayer within [New York].” §210.13(a)(2). The credit is computed by (1) dividing the gross receipts of the DISC derived from export property shipped from a regular place of business within New York by the DISC’S total gross receipts derived from the sale of export property; (2) multiplying that quotient (the DISC’S New York export ratio) by the parent’s New York business allocation percentage; (3) multiplying that product by the New York tax rate applicable to the parent; (4) multiplying that product by 70%; and (5) multiplying that product by the parent’s attributable share of the accumulated income of the DISC for the year. §§ 210.13(a)(2) to (5).

M

The basic facts are stipulated. Appellant Westinghouse Electric Corporation (Westinghouse) is a Pennsylvania corporation engaged in the manufacture and sale of electrical equipment, parts, and appliances. Westinghouse is qualified to do business in New York, and it regularly pays corporate income and franchise taxes to that State. Among Westinghouse’s subsidiaries is Westinghouse Electric Export Corporation (Westinghouse Export), a Delaware corporation wholly owned by Westinghouse, that qualifies as a federally tax-exempt DISC. Westinghouse Export acts as a commission agent on behalf of both Westinghouse and Westinghouse’s other affiliates for export sales of products manufactured in the United States and services related to those products. All of Westinghouse Export’s income in 1972 and 1973 consisted of commissions on export sales. On both its 1972 and 1973 federal income and New York State franchise tax returns, Westinghouse included as income, and paid taxes on, an amount of deemed distributed income equal to about half of Westinghouse Export’s income. In 1972, Westinghouse Export’s income was about $26 million, and Westinghouse included in its consolidated return approximately $13 million of income deemed distributed from Westinghouse Export. In 1973, the income of Westinghouse Export was approximately $58 million; Westinghouse reported almost $30 million of that amount as deemed distributed income. Westinghouse, however, did not include the DISC’S accumulated income in its consolidated returns.

The appellees, as the New York State Tax Commission (Tax Commission), sought to include in Westinghouse’s consolidated income the accumulated DISC income; that is, the Tax Commission computed Westinghouse’s taxable income by first combining all of Westinghouse Export’s income with that of Westinghouse, pursuant to N. Y. Tax Law §208.9(i) (B) (McKinney Supp. 1983-1984). The Commission gave Westinghouse the benefit of the DISC export credit for the approximately 5% of Westinghouse Export’s receipts each year that could be attributed to New York shipments. After applying the relevant allocation and tax percentages, the Tax Commission asserted deficiencies in Westinghouse’s franchise tax of $73,970 (later corrected to $71,970) plus interest for 1972 and $151,437 plus interest for 1973. App. 42, 46.

Westinghouse filed a petition for redetermination of the proposed deficiencies. By its petition, as later perfected, Westinghouse contended that by requiring it to compute its franchise tax liability on a consolidated basis with Westinghouse Export, the Tax Commission was taxing income that did not have a jurisdictional nexus to the State, in violation of the Commerce and Due Process Clauses of the United States Constitution. Westinghouse further contended that limiting the tax benefit of the DISC export credit to gross receipts from shipments attributable to a New York place of business violated the Commerce, Due Process, and Equal Protection Clauses. The Commission declined to entertain Westinghouse’s contentions, on the ground that, as an administrative agency, it lacked jurisdiction to pass upon “the constitutionality of the laws of the State of New York.” Id., at 47.

Westinghouse then brought suit in the New York Supreme Court for review of the tax determination, again raising its constitutional claims. The case was transferred to the Appellate Division. That court, by a 3-to-2 vote, found the portion of the law that requires accumulated income of the DISC to be added to the consolidated return, §208.9(i)(B), to be an unconstitutional burden on foreign commerce. 82 App. Div. 2d 988, 440 N. Y. S. 2d 397 (1981). The Appellate Division based its holding on the fact that Congress intended to exempt DISC income from current taxation. Id., at 989, 440 N. Y. S. 2d, at 399-400. This decision made it unnecessary for the court to consider the constitutionality of New York’s geographical limitation on the DISC export credit, because the credit applies only to accumulated DISC income. The Appellate Division, however, went on to reject Westinghouse’s constitutional challenges to New York’s taxation of deemed distributed income. Ibid., 440 N. Y. S. 2d, at 400.

The Tax Commission took an appeal to the New York Court of Appeals from that portion of the Appellate Division’s judgment invalidating §208.9(i)(B), and Westinghouse cross-appealed from that portion of the judgment upholding the taxation of deemed distributions. Westinghouse again made the constitutional arguments it had raised below. In a unanimous opinion, the Court of Appeals reinstated the determination of the Tax Commission. 55 N. Y. 2d 364, 434 N. E. 2d 1044 (1982). The Court of Appeals first held that Congress’ decision not to tax DISCs at the federal level did not pre-empt a State from taxing a DISC. Id., at 372-373, 434 N. E. 2d, at 1047-1048. The court also rejected Westinghouse’s argument that the State lacked the jurisdictional nexus necessary to satisfy the minimal due process standards on which the right to tax must be predicated. Finally, the court rejected Westinghouse’s claim that the credit provided for in §210.13(a) impermissibly subjected Westinghouse’s export sales from a non-New York place of business to a higher tax rate than that on comparable sales shipped from a regular place of business in New York. The court noted that the credit was devised by the State to provide shareholders of DISCs with state-tax incentives akin to those enacted by Congress. The only difference was that, while Congress had chosen to provide the benefit in the form of a tax deferral, the New York Legislature had elected to use a credit. Id., at 374-376, 434 N. E. 2d, at 1049-1050.

The court acknowledged that the credit was intended to ensure that New York would not lose its competitive position vis-á-vis other States, since other States were also expected to offer tax benefits to DISCs. It traced the steps required in calculating the tax credit and concluded: “Obviously, the business allocation percentage plays an integral role in computing the tax credit.” Id., at 375, 434 N. E. 2d, at 1050. Use of the business allocation percentage, the court reasoned, ensures that in taxing DISC income, the State is taxing only that DISC income that has a jurisdictional nexus with the State. The credit simply forgives a portion of the tax New York has a right to levy. Id., at 376, 434 N. E. 2d, at 1050. The portion of the tax to be forgiven is determined by reference to shipments of export property from a regular place of business in New York. The court was of the opinion that this method satisfies due process and that any effect on interstate commerce is too indirect to run afoul of the Commerce Clause. Ibid.

We noted probable jurisdiction only with respect to the question of the constitutionality of the DISC tax credit, 459 U. S. 1144 (1983), and we now reverse the judgment of the New York Court of Appeals in that respect.

III

The Tax Commission seeks to convince us that the DISC tax credit forgives merely a portion of the tax that New York has jurisdiction to levy. All the accumulated income of a DISC is attributed to its parent for tax purposes. Under unitary tax principles, however, if the parent has a regular place of business outside New York, the State will not actually tax the full amount of the accumulated income. Only a portion of the parent’s net income (which includes the accumulated DISC income) will be subject to tax in New York. That portion is determined by reference to a business allocation percentage determined by averaging the percentages of in-state property, payroll, and receipts. See N. Y. Tax Law § 210.3 (McKinney Supp. 1983-1984). This Court long has upheld, subject to certain restraints, the use of a formula-apportionment method to determine the percentage of a business’ income taxable in a given jurisdiction. Container Corp. v. Franchise Tax Board, 463 U. S. 159, 169-171 (1983); see Illinois Central R. Co. v. Minnesota, 309 U. S. 157 (1940); Hans Rees' Sons, Inc. v. North Carolina ex rel. Maxwell, 283 U. S. 123 (1931); Bass, Ratcliff & Gretton, Ltd. v. State Tax Comm’n, 266 U. S. 271 (1924); Underwood Typewriter Co. v. Chamberlain, 254 U. S. 113 (1920).

The Tax Commission’s argument that New York employs a constitutionally acceptable allocation formula, in our view, serves only to obscure the issue in this case. The acceptability of the allocation formula employed by the State of New York is not relevant to the question before us. The fact that New York is attempting to tax only a fairly apportioned percentage of a DISC’S accumulated income does not insulate from constitutional challenge the State’s method of allowing the DISC export credit. New York’s apportionment procedure determines what portion of a business’ income is within the jurisdiction of New York. Nothing about the apportionment process releases the State from the constitutional restraints that limit the way in which it exercises its taxing power over the income within its jurisdiction.

Here, Westinghouse argues that the State of New York has sought to exercise its taxing power over accumulated DISC income in a manner that offends the Commerce Clause and the Equal Protection Clause of the Fourteenth Amendment. This challenge is not foreclosed by our holding that New York’s allocation of DISC income is constitutionally acceptable. See 459 U. S. 1144 (1983) (dismissing for want of a substantial federal question Westinghouse’s challenge to method of allocating DISC income to parent). “Fairly apportioned” and “nondiscriminatory” are not synonymous terms. It is to the question whether the method of allowing the credit is discriminatory in a manner that violates the Commerce Clause that we now turn.

The Tax Commission argues that multiplying the allowable credit by the New York export ratio of the DISC merely ensures that the State is not allowing a parent corporation to claim a tax credit with respect to DISC income that is not taxable by the State of New York. This argument ignores the fact that the percentage of the DISC’S accumulated income that is subject to New York franchise tax is determined by the parent’s business allocation percentage, not by the export ratio. In computing the allowable credit, the statute requires the parent to factor in its business allocation percentage. §210.13(a). This procedure alleviates the State’s fears that it will be overly generous with its tax credit, for once the adjustment of multiplying the allowable DISC export credit by the parent’s business allocation percentage has been accomplished, the tax credit has been fairly apportioned to apply only to the amount of the accumulated DISC income taxable to New York. From the standpoint of fair apportionment of the credit, the additional adjustment of the credit to reflect the DISC’S New York export ratio is both inaccurate and duplicative.

It is this second adjustment, made only to the credit and not to the base taxable income figure, that has the effect of treating differently parent corporations that are similarly situated in all respects except for the percentage of their DISCs’ shipping activities conducted from New York. This adjustment has the effect of allowing a parent a greater tax credit on its accumulated DISC income as its subsidiary DISC moves a greater percentage of its shipping activities into the State of New York. Conversely, the adjustment decreases the tax credit allowed to the parent for a given amount of its DISC’S shipping activity conducted from New York as the DISC increases its shipping activities in other States. Thus, not only does the New York tax scheme “provide a positive incentive for increased business activity-in New York State,” Budget Report, at 18, but also it penalizes increases in the DISC’S shipping activities in other States.

In determining whether New York’s method of allowing a DISC export credit violates the Commerce Clause, the foundation of our analysis is the basic principle that “ ‘[t]he very purpose of the Commerce Clause was to create an area of free trade among the several States.’” Boston Stock Exchange v. State Tax Comm’n, 429 U. S. 318, 328 (1977), quoting McLeod v. J. E. Dilworth Co., 322 U. S. 327, 330 (1944); accord, Great Atlantic & Pacific Tea Co. v. Cottrell, 424 U. S. 366 (1976). The undisputed corollary of that principle is that “‘the Commerce Clause was not merely an authorization to Congress to enact laws for the protection and encouragement of commerce among the States, but by its own force created an area of trade free from interference by the States. . . . [T]he Commerce Clause even without implementing legislation by Congress is a limitation upon the power of the States,’” including the States’ power to tax. Boston Stock Exchange, 429 U. S., at 328, quoting Freeman v. Hewit, 329 U. S. 249, 252 (1946). For that reason, “[n]o State, consistent with the Commerce Clause, may ‘impose a tax which discriminates against interstate commerce ... by providing a direct commercial advantage to local business.’ ” Boston Stock Exchange, 429 U. S., at 329, quoting Northwestern States Portland Cement Co. v. Minnesota, 358 U. S. 450, 458 (1959). See also Halliburton Oil Well Cementing Co. v. Reily, 373 U. S. 64 (1963); Nippert v. Richmond, 327 U. S. 416 (1946); I. M. Darnell & Son Co. v. Memphis, 208 U. S. 113 (1908); Guy v. Baltimore, 100 U. S. 434 (1880); Welton v. Missouri, 91 U. S. 275 (1876).

We have acknowledged that the delicate balancing of the national interest in free and open trade and a State’s interest in exercising its taxing powers requires a case-by-case analysis and that such analysis has left “‘much room for controversy and confusion and little in the way of precise guides to the States in the exercise of their indispensable power of taxation.’” Boston Stock Exchange, 429 U. S., at 329, quoting Northwestern States, 358 U. S., at 457. In light of our decision in Boston Stock Exchange, however, we think that there is little room for such “controversy and confusion” in the present litigation. The lessons of that case, as explicated further in Maryland v. Louisiana, 451 U. S. 725 (1981), are controlling.

In both Maryland v. Louisiana and Boston Stock Exchange, the Court struck down state tax statutes that encouraged the development of local industry by means of taxing measures that imposed greater burdens on economic activities taking place outside the State than were placed on similar activities within the State. In Maryland v. Louisiana, the Court held that Louisiana’s “First-Use” tax — which imposed a tax on natural gas brought into the State while giving local users a series of exemptions and credits — violated the Commerce Clause because it “unquestionably discriminate[d] against interstate commerce in favor of local interests.” 451 U. S., at 756. Similarly, in Boston Stock Exchange, the Court held unconstitutional a New York stock-transfer tax that reduced the tax payable by nonresidents when the tax involved an in-state (rather than an out-of-state) sale and applied a maximum limit to the tax payable on any in-state (but not out-of-state) sale. See 429 U. S., at 332. The stock-transfer tax was declared unconstitutional because it violated the principle that “no State may discriminatorily tax the products manufactured or the business operations performed in any other State.” Id., at 337. The tax schemes rejected by this Court in both Maryland v. Louisiana and Boston Stock Exchange involved transactional taxes rather than taxes on general income. That distinction, however, is irrelevant to our analysis. The franchise tax is a tax on the income of a business from its aggregated business transactions. It cannot be that a State can circumvent the prohibition of the Commerce Clause against placing burdensome taxes on out-of-state transactions by burdening those transactions with a tax that is levied in the aggregate — as is the franchise tax — rather than on individual transactions.

Nor is it relevant that New York discriminates against business carried on outside the State by disallowing a tax credit rather than by imposing a higher tax. The discriminatory economic effect of these two measures would be identical. New York allows a 70% credit against tax liability for all shipments made from within the State. This provision is indistinguishable from one that would apply to New York shipments a tax rate that is 30% of that applied to shipments from other States. We have declined to attach any constitutional significance to such formal distinctions that lack economic substance. See, e. g., Maryland v. Louisiana, 451 U. S., at 756 (tax scheme imposing tax at uniform rate on in-state and out-of-state sales held to be unconstitutional because discrimination against interstate commerce was “the necessary result of various tax credits and exclusions” that benefited only in-state consumers of gas).

The Tax Commission contends that the DISC export credit is a subsidy to American export business generally, and as such, is consistent with congressional intent in establishing DISCs and with the Commerce Clause. We find no merit in this argument. While the Federal Government may seek to increase domestic employment and improve our balance-of-payments by offering tax advantages to those who produce in the United States rather than abroad, a State may not encourage the development of local industry by means of taxing measures that “invite a multiplication of preferential trade areas” within the United States, in contravention of the Commerce Clause. Dean Milk Co. v. Madison, 340 U. S. 349, 356 (1951). We note, also, that if the credit were truly intended to promote exports from the United States in general, there would be no reason to limit it to exports from within New York.

The Tax Commission argues that even if the tax is discriminatory, the burden it places on interstate commerce is not of constitutional significance. It points to the facts that New York is a State with a relatively high franchise tax and that the actual effect of the credit, when viewed in terms of the whole New York tax scheme, is slight. It argues that the credit was not intended to divert new activity into New York, but, rather, to prevent the loss of economic activity already in the State at the time the tax on accumulated DISC income was enacted. Whether the discriminatory tax diverts new business into the State or merely prevents current business from being diverted elsewhere, it is still a discriminatory tax that “forecloses tax-neutral decisions and . . . creates ... an advantage” for firms operating in New York by placing “a discriminatory burden on commerce to its sister States.” Boston Stock Exchange, 429 U. S., at 331. The State has violated the prohibition in Boston Stock Exchange against using discriminatory state taxes to burden commerce in other States in an attempt to induce “ ‘business operations to be performed in the home State that could more efficiently be performed elsewhere/” id., at 336, quoting Pike v. Bruce Church, Inc., 397 U. S. 137, 145 (1970), and to “‘impose an artificial rigidity on the economic pattern of the industry/” id., at 146, quoting Toomer v. Witsell, 334 U. S. 385, 404 (1948). When a tax, on its face, is designed to have discriminatory economic effects, the Court “need not know how unequal the Tax is before concluding that it unconstitutionally discriminates.” Maryland v. Louisiana, 451 U. S., at 760.

The manner in which New York allows corporations a tax credit on the accumulated income of their subsidiary DISCs discriminates against export shipping from other States, in violation of the Commerce Clause. The contrary judgment of the New York Court of Appeals is therefore reversed.

It is so ordered.

       Specifically, § 992(a)(1) provides that a corporation qualifies for DISC treatment for any taxable year in which it
      “is incorporated under the laws of any State and satisfies the following conditions for the taxable year:
      “(A) 95 percent or more of the gross receipts (as defined in section 993(f)) of such corporation consist of qualified export receipts (as defined in section 993(a)),
      “(B) the adjusted basis of the qualified export assets (as defined in section 993(b)) of the corporation at the close of the taxable year equals or exceeds 95 percent of the sum of the adjusted basis of all assets of the corporation at the close of the taxable year,
      “(C) such corporation does not have more than one class of stock and the par or stated value of its outstanding stock is at least $2,500 on each day of the taxable year, and
      “(D) the corporation has made an election pursuant to subsection (b) to be treated as a DISC and such election is in effect for the taxable year.” Under § 993(a)(1), “the qualified export receipts of a corporation are—
      “(A) gross receipts from the sale, exchange, or other disposition of export property,
      “(B) gross receipts from the lease or rental of export property, which is used by the lessee of such property outside the United States,
      “(C) gross receipts for services which are related and subsidiary to any qualified sale, exchange, lease, rental, or other disposition of export property by such corporation,
      “(D) gross receipts from the sale, exchange, or other disposition or qualified export assets (other than export property),
      “(E) dividends (or amounts includible in gross income under section 951) with respect to stock of a related foreign export corporation (as defined in subsection (e)),
      “(F) interest on any obligation which is a qualified export asset,
      “(G) gross receipts for engineering or architectural services for construction projects located (or proposed for location) outside the United States, and
      “(H) gross receipts for the performance of managerial services in furtherance of the production of other qualified export receipts of a DISC.”

       The majority of DISCs have only one shareholder, for most are wholly owned by a single corporate parent. Internal Revenue Service, 3 Statistics of Income Bulletin, No. 2, p. 10 (1983).

       Subsequent to the tax years in question, the law governing DISCs was changed to decrease the amount of DISC income given preferential treatment. The Tax Reform Act of 1976, Pub. L. 94-455, § 1101(a), 90 Stat. 1655, limited DISC benefits to taxable income attributable to gross receipts in excess of 67% of the average export gross receipts in a 4-year base period. DISCs with adjusted taxable income of $100,000 or less are exempt from that provision. §§ 995(e)(3) and (f) of the Code, 26 U. S. C. §§ 995(e)(3) and (f). The Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248, § 204(a), 96 Stat. 423, increased from 50% to 57.5%, for tax years beginning in 1983, the portion of DISC income deemed distributed to the DISC’S shareholders. § 291(a)(4) of the Code, 26 U. S. C. § 291(a)(4).

         The State considered two possible methods of DISC taxation. Under the first, a DISC would be taxed directly on its income. Use of this method would encourage formation of DISCs outside the State, so that New York would obtain no tax revenue from them. A direct tax on DISCs would also engender administrative costs. In general, New York uses federal taxable income as the base from which to determine income taxable by the State. Since a DISC would have no federal taxable income, a method of determining a DISC’S taxable income for state-tax purposes would have to be devised. Budget Report, at 18.
      Under the second method, a DISC’S income would be attributed to the DISC’S shareholders and taxed as income to them. New York revenue officials feared that full taxation of the DISC’S income in this manner would discourage the manufacture of export products within the State. Ibid.

       A corporation’s business allocation percentage for New York tax purposes is computed according to a formula set forth in N. Y. Tax Law §210.3 (McKinney Supp. 1983-1984). The percentage is, basically, the average of the percentages of the corporation’s property situated, income earned, and payroll distributed within the State.

       More precisely, Westinghouse Export’s reported income for 1972 was $25,987,000. The amount of the deemed distribution for 1972 was $12,956,500. App. 43.

       Westinghouse Export’s reported income for 1973 was $57,948,738. The amount of the deemed distribution for 1973 was $29,838,006. Ibid.

       The Tax Commission was willing to allow Westinghouse a $2,569.77 credit for the 4.771297% of Westinghouse Export’s 1972 receipts attributable to goods shipped from New York ports, and a $6,098.22 credit for the 5.523182% of the DISC’S 1973 receipts attributable to New York shipments. Id., at 46.

       Hypothetical examples demonstrate that similarly situated corporations, each operating a wholly owned DISC, would face different tax assessments in New York depending on the location from which the DISC shipped its exports. For a parent corporation that has an income of $10,000, a wholly owned DISC with accumulated income of $500, and a New York business allocation percentage of 40%, and assuming an applicable New York tax rate of 10%, Table A shows the difference in New York tax liability in situations where the DISC ships 100%, 50%, or 0% of its exports from locations in New York:
      TABLE A
      % of DISC Shipment from New York 100% 50%_0%
      Parent’s Income $10,000 $10,000 $10,000
      DISC Accumulated Income 500 500 500
      Consolidated Income 10,500 10,500 10,500
      New York Business Allocation % 40% 40% 40%
      Income Taxable by New York 4,200 4,200 4,200
      New York Tax Rate 10% 10% 10%
      Tax Liability (Pre-Credit) 420 420 420
      DISC Credit Allowed 14_7_0_
      Final Tax Assessment 406 413 420
      The DISC credit allowed is computed by multiplying the percentage of the DISC’s export revenues derived from New York shipments (100%, 50% or 0%) by the parent’s New York business allocation percentage (40%); multiplying that product by the parent’s New York tax rate (10%); multiplying that product by the credit percentage (70%); and, finally, multiplying that product by the amount of the accumulated DISC income attributable to the parent ($500).
      We are not unmindful of one factor that results when a corporation is induced to move more of its export business into the State of New York: the parent’s business allocation percentage will be adjusted upward to reflect the increased percentage of DISC activity in the State. The increased tax liability will more than offset the increased credit, so that the parent’s tax liability to the State of New York, in absolute terms, increases. The parent’s effective New York tax rate, however, decreases as its DISC does a greater percentage of its shipping from New York. In the next example, each parent is assumed to do 40% of its own business from New York, so that $4,000 of its income is attributable to New York activity. Each DISC has $500 of accumulated income, but differs from the others in terms of the percentage of its income that results from shipping exports from New York ports. Assuming that the same amount of payroll and property are required to generate each dollar of the DISC’S income, the business allocation percentage increases proportionately as the percentage of the DISC’S income derived from New York shipping activity increases:
      TABLE B
      % of DISC Shipment from New York 100% 50%_0%
      Parent’s Income $10,000 $10,000 $10,000
      DISC Accumulated Income 500 500 500
      Consolidated Income 10,500 10,500 10,500
      New York Business Allocation % 42.86% 40.48% 38.10%
      Income Taxable by New York 4,500 4,250 4,000
      New York Tax Rate 10% 10% 10%
      Tax Liability (Pre-Credit) 450 425 400
      DISC Credit Allowed 15 _7_ _0_
      Final Tax Assessment 435 418 400
      Effective Tax Rate on Income Taxable in New York 9.67% 9.84% 10%
      The third example demonstrates the most pernicious effect of the credit scheme. In this example, each parent and its DISC maintain the same amount of business in New York as do the other parent-DISC organizations, but the DISCs differ with respect to the amount of export shipping they do from outside New York. Each parent has $10,000 of income and each does 40% of its own business in New York. In addition, each DISC ships the goods that account for $3,000 of its income from New York. The only difference among the three parent-DISC organizations is the amount of DISC activity each conducts outside New York. As the DISC conducts a greater amount of shipping from outside New York, the DISC export credit allowed the parent decreases. Thus, New York lowers the incentive it awards for in-state DISC activity as the DISC increases its out-of-state activity:
      TABLE C
      % of DISC Shipment from New York 100% 75% 60%
      DISC Accumulated Income from New York Shipments $3,000 $3,000 $3,000
      DISC Accumulated Income from Shipments from Other States _0_ 1,000 2,000
      Total DISC Accumulated Income 3,000 4,000 5,000
      Parent’s Income 10,000 10,000 10,000
      Consolidated Income 13,000 14,000 15,000
      New York Business Allocation % 53.85% 50% 46.67%
      Income Taxable by New York 7,000 7,000 7,000
      New York Tax Rate 10% 10% 10%
      Tax Liability (Pre-credit) 700 700 700
      DISC Credit Allowed 113 105 98
      Final Tax Assessment 587 595 602
      These examples illustrate what is inherent in the method devised by the New York Legislature for computing the DISC credit: the credit is awarded in a discriminatory manner on the basis of the percentage of a DISC’S shipping conducted from within the State of New York.

       For example, Westinghouse was subject to a 9% tax rate in New York. On those shipments for which the 70% credit was allowed, the effective tax rate was 30% x 9%, or 2.7%.

       In an effort to rebut the argument that the credit diverts economic activity from other States, the Tax Commission also submits that New York’s share of the Nation’s export business has declined since the institution of the credit. Brief for Appellees 26-27. This loss of export business does not refute appellant’s argument. Although the credit may not be large enough to halt or reverse the exodus of export business from New York, the discriminatory manner in which it is allowed no doubt has slowed the rate of decline in New York’s share of national export shipping.

       The Tax Commission seeks to classify the tax credit at issue here as an indirect subsidy to export commerce, similar to provision and maintenance of ports, airports, waterways, and highways; to provision of police and fire protection; and to enactment of job-incentive credits and investment-tax credits. Id., at 21-22. We reiterate that it is not the provision of the credit that offends the Commerce Clause, but the fact that it is allowed on an impermissible basis, i. e., the percentage of a specific segment of the corporation’s business that is conducted in New York. As in Boston Stock Exchange, we do not “hold that a State may not compete with other States for a share of interstate commerce; such competition lies at the heart of a free trade policy. We hold only that in the process of competition no State may discriminatorily tax the products manufactured or the business operations performed in any other State.” 429 U. S., at 336-337.

       In an attempt to illustrate the insignificance of the size and practical effect of the credit at issue, the Tax Commission reminds us that rejection of the credit will have little effect on Westinghouse’s tax bill for 1972 and 1973. In fact, in the absence of the credit, Westinghouse will owe approximately $8,500 more to the State of New York. See n. 8, supra; Tr. of Oral Arg. 20. This amount appears insignificant when compared to Westinghouse’s New York tax bill of approximately $1 million for the 1972-1973 period. See ibid. Although the extent of the discrimination does not affect our analysis, we note that the controversy here is hardly over a de minimis amount when considered from the perspective of the amount of credit Westinghouse forwent because its DISC shipped the majority of its goods from ports outside New York. Westinghouse received $8,500 in credit because only 5% of its DISC’S exports were shipped from New York. A similarly situated corporation whose DISC had conducted 100% of its export shipping from New York would have received a credit of approximately $170,000.


source: Caselaw Access Project

author: Justice Blackmun Justice Brennan,

license: Public Domain

text:
    HELICOPTEROS NACIONALES de COLOMBIA, S. A. v. HALL et al.
    No. 82-1127.
    Argued November 8, 1983 —
    Decided April 24, 1984

      Blackmun, J., delivered the opinion of the Court, in which Burgee, C. J., and White, Marshall, Powell, Rehnquist, Stevens, and O’Connor, JJ., joined. Brennan, J., filed a dissenting opinion, post, p. 419.

      Thomas J. Whalen argued the cause for petitioner. With him on the briefs were Austin P. Magner, Cynthia J. Larsen, James E. Ingram, and Barry A. Chasnoff.

      George E. Pletcher argued the cause and filed a brief for respondents.

        Robert L. Stem, Stephen M. Shapiro, William H. Crabtree, and Edward P. Good filed a brief for the Motor Vehicle Manufacturers Association as amicus curiae urging reversal.

        Solicitor General Lee, Assistant Attorney General McGrath, Deputy Solicitor General Getter, Kathryn A. Oberly, Michael F. Hertz, and Howard S. Scher filed a brief for the United States as amicus curiae.

   Justice Blackmun

delivered the opinion of the Court.

We granted certiorari in this case, 460 U. S. 1021 (1983), to decide whether the Supreme Court of Texas correctly ruled that the contacts of a foreign corporation with the State of Texas were sufficient to allow a Texas state court to assert jurisdiction over the corporation in a cause of action not arising out of or related to the corporation’s activities within the State.

I

Petitioner Helicopteros Nacionales de Colombia, S. A. (Helicol), is a Colombian corporation with its principal place of business in the city of Bogota in that country. It is engaged in the business of providing helicopter transportation for oil and construction companies in South America. On January 26, 1976, a helicopter owned by Helicol crashed in Peru. Four United States citizens were among those who lost their lives in the accident. Respondents are the survivors and representatives of the four decedents.

At the time of the crash, respondents’ decedents were employed by Consorcio, a Peruvian consortium, and were working on a pipeline in Peru. Consorcio is the alter ego of a joint venture named Williams-Sedco-Horn (WSH). The venture had its headquarters in Houston, Tex. Consorcio had been formed to enable the venturers to enter into a contract with Petro Peru, the Peruvian state-owned oil company. Consorcio was to construct a pipeline for Petro Peni running from the interior of Peru westward to the Pacific Ocean. Peruvian law forbade construction of the pipeline by any non-Peruvian entity.

Consorcio/WSH needed helicopters to move personnel, materials, and equipment into and out of the construction area. In 1974, upon request of Consorcio/WSH, the chief executive officer of Helicol, Francisco Restrepo, flew to the United States and conferred in Houston with representatives of the three joint venturers. At that meeting, there was a discussion of prices, availability, working conditions, fuel, supplies, and housing. Restrepo represented that Helicol could have the first helicopter on the job in 15 days. The Consorcio/WSH representatives decided to accept the contract proposed by Restrepo. Helicol began performing before the agreement was formally signed in Peru on November 11, 1974. The contract was written in Spanish on official government stationery and provided that the residence of all the parties would be Lima, Peru. It further stated that controversies arising out of the contract would be submitted to the jurisdiction of Peruvian courts. In addition, it provided that Consorcio/WSH would make payments to Helicol’s account with the Bank of America in New York City. App. 12a.

Aside from the negotiation session in Houston between Restrepo and the representatives of Consorcio/WSH, Helicol had other contacts with Texas. During the years 1970-1977, it purchased helicopters (approximately 80% of its fleet), spare parts, and accessories for more than $4 million from Bell Helicopter Company in Fort Worth. In that period, Helicol sent prospective pilots to Fort Worth for training and to ferry the aircraft to South America. It also sent management and maintenance personnel to visit Bell Helicopter in Fort Worth during the same period in order to receive “plant familiarization” and for technical consultation. Helicol received into its New York City and Panama City, Fla., bank accounts over $5 million in payments from Consorcio/WSH drawn upon First City National Bank of Houston.

Beyond the foregoing, there have been no other business contacts between Helicol and the State of Texas. Helicol never has been authorized to do business in Texas and never has had an agent for the service of process within the State. It never has performed helicopter operations in Texas or sold any product that reached Texas, never solicited business in Texas, never signed any contract in Texas, never had any employee based there, and never recruited an employee in Texas. In addition, Helicol never has owned real or personal property in Texas and never has maintained an office or establishment there. Helicol has maintained no records in Texas and has no shareholders in that State. None of the respondents or their decedents were domiciled in Texas, Tr. of Oral Arg. 17,18, but all of the decedents were hired in Houston by Consorcio/WSH to work on the Petro Peru pipeline project.

Respondents instituted wrongful-death actions in the District Court of Harris County, Tex., against Consorcio/WSH, Bell Helicopter Company, and Helicol. Helicol filed special appearances and moved to dismiss the actions for lack of in personam jurisdiction over it. The motion was denied. After a consolidated jury trial, judgment was entered against Helicol on a jury verdict of $1,141,200 in favor of respondents. App. 174a.

The Texas Court of Civil Appeals, Houston, First District, reversed the judgment of the District Court, holding that in personam jurisdiction over Helicol was lacking. 616 S. W. 2d 247 (1981). The Supreme Court of Texas, with three justices dissenting, initially affirmed the judgment of the Court of Civil Appeals. App. to Pet. for Cert. 46a-62a. Seven months later, however, on motion for rehearing, the court withdrew its prior opinions and, again with three justices dissenting, reversed the judgment of the intermediate court. 638 S. W. 2d 870 (1982). In ruling that the Texas courts had in personam jurisdiction, the Texas Supreme Court first held that the State’s long-arm statute reaches as far as the Due Process Clause of the Fourteenth Amendment permits. Id., at 872. Thus, the only question remaining for the court to decide was whether it was consistent with the Due Process Clause for Texas courts to assert in personam jurisdiction over Helicol. Ibid.

II

The Due Process Clause of the Fourteenth Amendment operates to limit the power of a State to assert in personam jurisdiction over a nonresident defendant. Pennoyer v. Neff, 95 U. S. 714 (1878). Due process requirements are satisfied when in personam jurisdiction is asserted over a nonresident corporate defendant that has “certain minimum contacts with [the forum] such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.’” International Shoe Co. v. Washington, 326 U. S. 310, 316 (1945), quoting Milliken v. Meyer, 311 U. S. 457, 463 (1940). When a controversy is related to or “arises out of” a defendant’s contacts with the forum, the Court has said that a “relationship among the defendant, the forum, and the litigation” is the essential foundation of in personam jurisdiction. Shaffer v. Heitner, 433 U. S. 186, 204 (1977).

Even when the cause of action does not arise out of or relate to the foreign corporation’s activities in the forum State, due process is not offended by a State’s subjecting the corporation to its in personam jurisdiction when there are sufficient contacts between the State and the foreign corporation. Perkins v. Benguet Consolidated Mining Co., 342 U. S. 437 (1952); see Keeton v. Hustler Magazine, Inc., 465 U. S. 770, 779-780 (1984). In Perkins, the Court addressed a situation in which state courts had asserted general jurisdiction over a defendant foreign corporation. During the Japanese occupation of the Philippine Islands, the president and general manager of a Philippine mining corporation maintained an office in Ohio from which he conducted activities on behalf of the company. He kept company files and held directors’ meetings in the office, carried on correspondence relating to the business, distributed salary checks drawn on two active Ohio bank accounts, engaged an Ohio bank to act as transfer agent, and supervised policies dealing with the rehabilitation of the corporation’s properties in the Philippines. In short, the foreign corporation, through its president, “ha[d] been carrying on in Ohio a continuous and systematic, but limited, part of its general business,” and the exercise of general jurisdiction over the Philippine corporation by an Ohio court was “reasonable and just.” 342 U. S., at 438, 445.

All parties to the present case concede that respondents’ claims against Helicol did not “arise out of,” and are not related to, Helicol’s activities within Texas. We thus must explore the nature of Helicol’s contacts with the State of Texas to determine whether they constitute the kind of continuous and systematic general business contacts the Court found to exist in Perkins. We hold that they do not.

It is undisputed that Helicol does not have a place of business in Texas and never has been licensed to do business in the State. Basically, Helicol’s contacts with Texas consisted of sending its chief executive officer to Houston for a contract-negotiation session; accepting into its New York bank account checks drawn on a Houston bank; purchasing helicopters, equipment, and training services from Bell Helicopter for substantial sums; and sending personnel to Bell’s facilities in Fort Worth for training.

The one trip to Houston by Helicol’s chief executive officer for the purpose of negotiating the transportation-services contract with Consorcio/WSH cannot be described or regarded as a contact of a “continuous and systematic” nature, as Perkins described it, see also International Shoe Co. v. Washington, 326 U. S., at 320, and thus cannot support an assertion of in personam jurisdiction over Helicol by a Texas court. Similarly, Helicol’s acceptance from Consorcio/WSH of checks drawn on a Texas bank is of negligible significance for purposes of determining whether Helicol had sufficient contacts in Texas. There is no indication that Helicol ever requested that the checks be drawn on a Texas bank or that there was any negotiation between Helicol and Consor-cio/WSH with respect to the location or identity of the bank on which checks would be drawn. Common sense and everyday experience suggest that, absent unusual circumstances, the bank on which a check is drawn is generally of little consequence to the payee and is a matter left to the discretion of the drawer. Such unilateral activity of another party or a third person is not an appropriate consideration when determining whether a defendant has sufficient contacts with a forum State to justify an assertion of jurisdiction. See Kulko v. California Superior Court, 436 U. S. 84, 93 (1978) (arbitrary to subject one parent to suit in any State where other parent chooses to spend time while having custody of child pursuant to separation agreement); Hanson v. Denckla, 357 U. S. 235, 253 (1958) (“The unilateral activity of those who claim some relationship with a nonresident defendant cannot satisfy the requirement of contact with the forum State”); see also Lilly, Jurisdiction Over Domestic and Alien Defendants, 69 Va. L. Rev. 85, 99 (1983).

The Texas Supreme Court focused on the purchases and the related training trips in finding contacts sufficient to support an assertion of jurisdiction. We do not agree with that assessment, for the Court’s opinion in Rosenberg Bros. & Co. v. Curtis Brown Co., 260 U. S. 516 (1923) (Brandeis, J., for a unanimous tribunal), makes clear that purchases and related trips, standing alone, are not a sufficient basis for a State’s assertion of jurisdiction.

The defendant in Rosenberg was a small retailer in Tulsa, Okla., who dealt in men’s clothing and furnishings. It never had applied for a license to do business in New York, nor had it at any time authorized suit to be brought against it there. It never had an established place of business in New York and never regularly carried on business in that State. Its only connection with New York was that it purchased from New York wholesalers a large portion of the merchandise sold in its Tulsa store. The purchases sometimes were made by correspondence and sometimes through visits to New York by an officer of the defendant. The Court concluded: “Visits on such business, even if occurring at regular intervals, would not warrant the inference that the corporation was present within the jurisdiction of [New York].” Id., at 518.

This Court in International Shoe acknowledged and did not repudiate its holding in Rosenberg. See 326 U. S., at 318. In accordance with Rosenberg, we hold that mere purchases, even if occurring at regular intervals, are not enough to warrant a State’s assertion of in personam jurisdiction over a nonresident corporation in a cause of action not related to those purchase transactions. Nor can we conclude that the fact that Helicol sent personnel into Texas for training in connection with the purchase of helicopters and equipment in that State in any way enhanced the nature of Helicol’s contacts with Texas. The training was a part of the package of goods and services purchased by Helicol from Bell Helicopter. The brief presence of Helicol employees in Texas for the purpose of attending the training sessions is no more a significant contact than were the trips to New York made by the buyer for the retail store in Rosenberg. See also Kulko v. California Superior Court, 436 U. S., at 93 (basing California jurisdiction on 3-day and 1-day stopovers in that State “would make a mockery of” due process limitations on assertion of personal jurisdiction).

III

We hold that Helicol’s contacts with the State of Texas were insufficient to satisfy the requirements of the Due Process Clause of the Fourteenth Amendment. Accordingly, we reverse the judgment of the Supreme Court of Texas.

It is so ordered.

Justice Brennan,

dissenting.

Decisions applying the Due Process Clause of the Fourteenth Amendment to determine whether a State may constitutionally assert in personam jurisdiction over a particular defendant for a particular cause of action most often turn on a weighing of facts. See, e. g., Kulko v. California Superior Court, 436 U. S. 84, 92 (1978); id., at 101-102 (BRENNAN, J., dissenting). To a large extent, today’s decision follows the usual pattern. Based on essentially undisputed facts, the Court concludes that petitioner Helicol’s contacts with the State of Texas were insufficient to allow the Texas state courts constitutionally to assert “general jurisdiction” over all claims filed against this foreign corporation. Although my independent weighing of the facts leads me to a different conclusion, see infra, at 423-424, the Court’s holding on this issue is neither implausible nor unexpected.

What is troubling about the Court’s opinion, however, are the implications that might be drawn from the way in which the Court approaches the constitutional issue it addresses. First, the Court limits its discussion to an assertion of general jurisdiction of the Texas courts because, in its view, the underlying cause of action does “not aris[e] out of or relat[e] to the corporation’s activities within the State.” Ante, at 409. Then, the Court relies on a 1923 decision in Rosenberg Bros. & Co. v. Curtis Brown Co., 260 U. S. 516, without considering whether that case retains any validity after our more recent pronouncements concerning the permissible reach of a State’s jurisdiction. By posing and deciding the question presented in this manner, I fear that the Court is saying more than it realizes about constitutional limitations on the potential reach of in personam jurisdiction. In particular, by relying on a precedent whose premises have long been discarded, and by refusing to consider any distinction between controversies that “relate to” a defendant’s contacts with the forum and causes of action that “arise out of” such contacts, the Court may be placing severe limitations on the type and amount of contacts that will satisfy the constitutional minimum.

In contrast, I believe that the undisputed contacts in this case between petitioner Helicol and the State of Texas are sufficiently important, and sufficiently related to the underlying cause of action, to make it fair and reasonable for the State to assert personal jurisdiction over Helicol for the wrongful-death actions filed by the respondents. Given that Helicol has purposefully availed itself of the benefits and obligations of the forum, and given the direct relationship between the underlying cause of action and Helicol’s contacts with the forum, maintenance of this suit in the Texas courts “does not offend [the] ‘traditional notions of fair play and substantial justice,’” International Shoe Co. v. Washington, 326 U. S. 310, 316 (1945) (quoting Milliken v. Meyer, 311 U. S. 457, 463 (1940)), that are the touchstone of jurisdictional analysis under the Due Process Clause. I therefore dissent.

I

The Court expressly limits its decision in this case to “an assertion of general jurisdiction over a foreign defendant.” Ante, at 418, n. 12. See ante, at 415, and n. 10. Having framed the question in this way, the Court is obliged to address our prior holdings in Perkins v. Benguet Consolidated Mining Co., 342 U. S. 437 (1952), and Rosenberg Bros. & Co. v. Curtis Brown Co., supra. In Perkins, the Court considered a State’s assertion of general jurisdiction over a foreign corporation that “ha[d] been carrying on ... a continuous and systematic, but limited, part of its general business” in the forum. 342 U. S., at 438. Under the circumstances of that case, we held that such contacts were constitutionally sufficient “to make it reasonable and just to subject the corporation to the jurisdiction” of that State. Id., at 445 (citing International Shoe, supra, at 317-320). Nothing in Perkins suggests, however, that such “continuous and systematic” contacts are a necessary minimum before a State may constitutionally assert general jurisdiction over a foreign corporation.

The Court therefore looks for guidance to our 1923 decision in Rosenberg, supra, which until today was of dubious validity given the subsequent expansion of personal jurisdiction that began with International Shoe, supra, in 1945. In Rosenberg, the Court held that a company’s purchases within a State, even when combined with related trips to the State by company officials, would not allow the courts of that State to assert general jurisdiction over all claims against the nonresident corporate defendant making those purchases. Reasoning by analogy, the Court in this case concludes that Helicol’s contacts with the State of Texas are no more significant than the purchases made by the defendant in Rosenberg. The Court makes no attempt, however, to ascertain whether the narrow view of in personam jurisdiction adopted by the Court in Rosenberg comports with “the fundamental transformation of our national economy” that has occurred since 1923. McGee v. International Life Ins. Co., 355 U. S. 220, 222-223 (1957). See also World-Wide Volkswagen Corp. v. Woodson, 444 U. S. 286, 292-293 (1980); id., at 308-309 (Brennan, J., dissenting); Hanson v. Denckla, 357 U. S. 235, 250-251 (1958); id., at 260 (Black, J., dissenting). This failure, in my view, is fatal to the Court’s analysis.

The vast expansion of our national economy during the past several decades has provided the primary rationale for expanding the permissible reach of a State’s jurisdiction under the Due Process Clause. By broadening the type and amount of business opportunities available to participants in interstate and foreign commerce, our economy has increased the frequency with which foreign corporations actively pursue commercial transactions throughout the various States. In turn, it has become both necessary and, in my view, desirable to allow the States more leeway in bringing the activities of these nonresident corporations within the scope of their respective jurisdictions.

This is neither a unique nor a novel idea. As the Court first noted in 1957:

“[M]any commercial transactions touch two or more States and may involve parties separated by the full continent. With this increasing nationalization of commerce has come a great increase in the amount of business conducted by mail across state lines. At the same time modern transportation and communication have made it much less burdensome for a party sued to defend himself in a State where he engages in economic activity.” McGee, supra, at 222-223.

See also World-Wide Volkswagen, supra, at 293 (reaffirming that “[t]he historical developments noted in McGee . . . have only accelerated in the generation since that case was decided”); Hanson v. Denckla, supra, at 250-251.

Moreover, this “trend . . . toward expanding the permissible scope of state jurisdiction over foreign corporations and other nonresidents,” McGee, supra, at 222, is entirely consistent with the “traditional notions of fair play and substantial justice,” International Shoe, 326 U. S., at 316, that control our inquiry under the Due Process Clause. As active participants in interstate and foreign commerce take advantage of the economic benefits and opportunities offered by the various States, it is only fair and reasonable to subject them to the obligations that may be imposed by those jurisdictions. And chief among the obligations that a nonresident corporation should expect to fulfill is amenability to suit in any forum that is significantly affected by the corporation’s commercial activities.

As a foreign corporation that has actively and purposefully engaged in numerous and frequent commercial transactions in the State of Texas, Helicol clearly falls within the category of nonresident defendants that may be subject to that forum’s general jurisdiction. Helicol not only purchased helicopters and other equipment in the State for many years, but also sent pilots and management personnel into Texas to be trained in the use of this equipment and to consult with the seller on technical matters. Moreover, negotiations for the contract under which Helicol provided transportation services to the joint venture that employed the respondents’ decedents also took place in the State of Texas. Taken .together, these contacts demonstrate that Helicol obtained numerous benefits from its transaction of business in Texas. In turn, it is eminently fair and reasonable to expect Helicol to face the obligations that attach to its participation in such commercial transactions. Accordingly, on the basis of continuous commercial contacts with the forum, I would conclude that the Due Process Clause allows the State of Texas to assert general jurisdiction over petitioner Helicol.

r — n I — I

The Court also fails to distinguish the legal principles that controlled our prior decisions in Perkins and Rosenberg. In particular, the contacts between petitioner Helicol and the State of Texas, unlike the contacts between the defendant and the forum in each of those cases, are significantly related to the cause of action alleged in the original suit filed by the respondents. Accordingly, in my view, it is both fair and reasonable for the Texas courts to assert specific jurisidiction over Helicol in this case.

By asserting that the present case does not implicate the specific jurisdiction of the Texas courts, see ante, at 415, and nn. 10 and 12, the Court necessarily removes its decision from the reality of the actual facts presented for our consideration. Moreover, the Court refuses to consider any distinction between contacts that are “related to” the underlying cause of action and contacts that “give rise” to the underlying cause of action. In my view, however, there is a substantial difference between these two standards for asserting specific jurisdiction. Thus, although I agree that the respondents’ cause of action did not formally “arise out of” specific activities initiated by Helicol in the State of Texas, I believe that the wrongful-death claim filed by the respondents is significantly related to the undisputed contacts between Helicol and the forum. On that basis, I would conclude that the Due Process Clause allows the Texas courts to assert specific jurisdiction over this particular action.

The wrongful-death actions filed by the respondents were premised on a fatal helicopter crash that occurred in Peru. Helicol was joined as a defendant in the lawsuits because it provided transportation services, including the particular helicopter and pilot involved in the crash, to the joint venture that employed the decedents. Specifically, the respondent Hall claimed in her original complaint that “Helicol is . . . legally responsible for its own negligence through its pilot employee.” App. 6a. Viewed in light of these allegations, the contacts between Helicol and the State of Texas are directly and significantly related to the underlying claim filed by the respondents. The negotiations that took place in Texas led to the contract in which Helicol agreed to provide the precise transportation services that were being used at the time of the crash. Moreover, the helicopter involved in the crash was purchased by Helicol in Texas, and the pilot whose negligence was alleged to have caused the crash was actually trained in Texas. See Tr. Of Oral Arg. 5, 22. This is simply not a case, therefore, in which a state court has asserted jurisdiction over a nonresident defendant on the basis of wholly unrelated contacts with the forum. Rather, the contacts between Helicol and the forum are directly related to the negligence that was alleged in the respondent Hall’s original complaint. Because Helicol should have expected to be amenable to suit in the Texas courts for claims directly related to these contacts, it is fair and reasonable to allow the assertion of jurisdiction in this case.

Despite this substantial relationship between the contacts and the cause of action, the Court declines to consider whether the courts of Texas may assert specific jurisdiction over this suit. Apparently, this simply reflects a narrow interpretation of the question presented for review. See ante, at 415-416, n. 10. It is nonetheless possible that the Court’s opinion may be read to imply that the specific jurisdiction of the Texas courts is inapplicable because the cause of action did not formally “arise out of” the contacts between Helicol and the forum. In my view, however, such a rule would place unjustifiable limits on the bases under which Texas may assert its jurisdictional power.

Limiting the specific jurisdiction of a forum to cases in which the cause of action formally arose out of the defendant’s contacts with the State would subject constitutional standards under the Due Process Clause to the vagaries of the substantive law or pleading requirements of each State. For example, the complaint filed against Helicol in this case alleged negligence based on pilot error. Even though the pilot was trained in Texas, the Court assumes that the Texas courts may not assert jurisdiction over the suit because the cause of action “did not ‘arise out of,’ and [is] not related to,” that training. See ante, at 415. If, however, the applicable substantive law required that negligent training of the pilot was a necessary element of a cause of action for pilot error, or if the respondents had simply added an allegation of negligence in the training provided for the Helicol pilot, then presumably the Court would concede that the specific jurisdiction of the Texas courts was applicable.

Our interpretation of the Due Process Clause has never been so dependent upon the applicable substantive law or the State’s formal pleading requirements. At least since International Shoe Co. v. Washington, 326 U. S. 310 (1945), the principal focus when determining whether a forum may constitutionally assert jurisdiction over a nonresident defendant has been on fairness and reasonableness to the defendant. To this extent, a court’s specific jurisdiction should be applicable whenever the cause of action arises out of or relates to the contacts between the defendant and the forum. It is eminently fair and reasonable, in my view, to subject a defendant to suit in a forum with which it has significant contacts directly related to the underlying cause of action. Because Helicol’s contacts with the State of Texas meet this standard, I would affirm the judgment of the Supreme Court of Texas.

       The participants in the joint venture were Williams International Sudamericana, Ltd., a Delaware corporation; Sedeo Construction Corporation, a Texas corporation; and Horn International, Inc., a Texas corporation.

       Throughout the record in this case the entity is referred to both as Consorcio and as WSH. We refer to it hereinafter as Consorcio/WSH.

       Respondents acknowledge that the contract was executed in Peru and not in the United States. Tr. of Oral Arg. 22-23. See App. 79a; Brief for Respondents 3.

       The Colombian national airline, Aerovías Nacionales de Colombia, owns approximately 94% of Helicol’s capital stock. The remainder is held by Aerovías Corporación de Viajes and four South American individuals. See Brief for Petitioner 2, n. 2.

       Respondents’ lack of residential or other contacts with Texas of itself does not defeat otherwise proper jurisdiction. Keeton v. Hustler Magazine, Inc., 465 U. S. 770, 780 (1984); Calder v. Jones, 465 U. S. 783, 788 (1984). We mention respondents’ lack of contacts merely to show that nothing in the nature of the relationship between respondents and Helicol could possibly enhance Helicol’s contacts with Texas. The harm suffered by respondents did not occur in Texas. Nor is it alleged that any negligence on the part of Helicol took place in Texas.

       Defendants Consorcio/WSH and Bell Helicopter Company were granted directed verdicts with respect to respondents’ claims against them. Bell Helicopter was granted a directed verdict on Helicol’s cross-claim against it. App. 167a. Consorcio/WSH, as cross-plaintiff in a claim against Helicol, obtained a judgment in the amount of $70,000. Id., at 174a.

       The State’s long-arm statute is Tex. Rev. Civ. Stat. Ann., Art. 2031b (Vernon 1964 and Supp. 1982-1983). It reads in relevant part:
      “Sec. 3. Any foreign corporation . . . that engages in business in this State, irrespective of any Statute or law respecting designation or maintenance of resident agents, and does not maintain a place of regular business in this State or a designated agent upon whom service may be made upon causes of action arising out of such business done in this State, the act or acts of engaging in such business within this State shall be deemed equivalent to an appointment by such foreign corporation ... of the Secretary of State of Texas as agent upon whom service of process may be made in any action, suit or proceedings arising out of such business done in this State, wherein such corporation ... is a party or is to be made a party.
      “Sec. 4. For the purpose of this Act, and without including other acts that may constitute doing business, any foreign corporation . . . shall be deemed doing business in this State by entering into contract by mail or otherwise with a resident of Texas to be performed in whole or in part by either party in this State, or the committing of any tort in whole or in part in this State. The act of recruiting Texas residents, directly or through an intermediary located in Texas, for employment inside or outside of Texas shall be deemed doing business in this State.”
      The last sentence of §4 was added by 1979 Tex. Gen. Laws, ch. 245, § 1, and became effective August 27, 1979.
      The Supreme Court of Texas in its principal opinion relied upon rulings in U-Anchor Advertising, Inc. v. Burt, 553 S. W. 2d 760 (Tex. 1977); Hoppenfeld v. Crook, 498 S. W. 2d 52 (Tex. Civ. App. 1973); and O’Brien v. Lanpar Co., 399 S. W. 2d 340 (Tex. 1966). It is not within our province, of course, to determine whether the Texas Supreme Court correctly interpreted the State’s long-arm statute. We therefore accept that court’s holding that the limits of the Texas statute are coextensive with those of the Due Process Clause.

       It has been said that when a State exercises personal jurisdiction over a defendant in a suit arising out of or related to the defendant’s contacts with the forum, the State is exercising “specific jurisdiction” over the defendant. See Von Mehren & Trautman, Jurisdiction to Adjudicate: A Suggested Analysis, 79 Harv. L. Rev. 1121, 1144-1164 (1966).

       When a State exercises personal jurisdiction over a defendant in a suit not arising out of or related to the defendant’s contacts with the forum, the State has been said to be exercising “general jurisdiction” over the defendant. See Brilmayer, How Contacts Count: Due Process Limitations on State Court Jurisdiction, 1980 S. Ct. Rev. 77, 80-81; Von Mehren & Trautman, 79 Harv. L. Rev., at 1136-1144; Calder v. Jones, 465 U. S., at 786.

       See Brief for Respondents 14; Tr. of Oral Arg. 26-27, 30-31. Because the parties have not argued any relationship between the cause of action and Helicol’s contacts with the State of Texas, we, contrary to the dissent’s implication, post, at 419-420, assert no “view” with respect to that issue.
      The dissent suggests that we have erred in drawing no distinction between controversies that “relate to” a defendant’s contacts with a forum and those that “arise out of” such contacts. Post, at 420. This criticism is somewhat puzzling, for the dissent goes on to urge that, for purposes of determining the constitutional validity of an assertion of specific jurisdiction, there really should be no distinction between the two. Post, at 427-428.
      We do not address the validity or consequences of such a distinction because the issue has not been presented in this case. Respondents have made no argument that their cause of action either arose out of or is related to Helicol’s contacts with the State of Texas. Absent any briefing on the issue, we decline to reach the questions (1) whether the terms “arising out of” and “related to” describe different connections between a cause of action and a defendant’s contacts with a forum, and (2) what sort of tie between a cause of action and a defendant’s contacts with a forum is necessary to a determination that either connection exists. Nor do we reach the question whether, if the two types of relationship differ, a forum’s exercise of personal jurisdiction in a situation where the cause of action “relates to,” but does not “arise out of,” the defendant’s contacts with the forum should be analyzed as an assertion of specific jurisdiction.

       For example, if the financial health and continued ability of the bank to honor the draft are questionable, the payee might request that the check be drawn on an account at some other institution.

       This Court in International Shoe cited Rosenberg for the proposition that “the commission of some single or occasional acts of the corporate agent in a state sufficient to impose an obligation or liability on the corporation has not been thought to confer upon the state authority to enforce it.” 326 U. S., at 318. Arguably, therefore, Rosenberg also stands for the proposition that mere purchases are not a sufficient basis for either general or specific jurisdiction. Because the case before us is one in which there has been an assertion of general jurisdiction over a foreign defendant, we need not decide the continuing validity of Rosenberg with respect to an assertion of specific jurisdiction, i. e., where the cause of action arises out of or relates to the purchases by the defendant in the forum State.

       As an alternative to traditional minimum-contacts analysis, respondents suggest that the Court hold that the State of Texas had personal jurisdiction over Helicol under a doctrine of “jurisdiction by necessity.” See Shaffer v. Heitner, 433 U. S. 186, 211, n. 37 (1977). We conclude, however, that respondents failed to carry their burden of showing that all three defendants could not be sued together in a single forum. It is not clear from the record, for example, whether suit could have been brought against all three defendants in either Colombia or Peru. We decline to consider adoption of a doctrine of jurisdiction by necessity — a potentially far-reaching modification of existing law — in the absence of a more complete record.

       The Court leaves open the question whether the decision in Rosenberg was intended to address any constitutional limits on an assertion of “specific jurisdiction.” Ante, at 418, n. 12 (citing International Shoe, 326 U. S., at 318). If anything is clear from Justice Brandéis' opinion for the Court in Rosenberg, however, it is that the Court was concerned only with general jurisdiction over the corporate defendant. See 260 U. S., at 517 (“The sole question for decision is whether . . . defendant was doing business within the State of New York in such manner and to such extent as to warrant the inference that it was present there”); id,., at 518 (the corporation’s contacts with the forum “would not warrant the inference that the corporation was present within the jurisdiction of the State”); ante, at 417. The Court’s resuscitation of Rosenberg, therefore, should have no bearing upon any forum’s assertion of jurisidiction over claims that arise out of or relate to a defendant’s contacts with the State.

       Although the Court takes note of these contacts, it concludes that they did not “enhane[e] the nature of Helicol’s contacts with Texas [because the] training was a part of the package of goods and services purchased by Helicol.” Ante, at 418. Presumably, the Court’s statement simply recognizes that participation in today’s interdependent markets often necessitates the use of complicated purchase contracts that provide for numerous contacts between representatives of the buyer and seller, as well as training for related personnel. Ironically, however, while relying on these modern-day realities to denigrate the significance of Helicol’s contacts with the forum, the Court refuses to acknowledge that these same realities require a concomitant expansion in a forum’s jurisdictional reach. See supra, at 421-423. As a result, when deciding that the balance in this case must be struck against jurisdiction, the Court loses sight of the ultimate inquiry: whether it is fair and reasonable to subject a nonresident corporate defendant to the jurisdiction of a State when that defendant has purposefully availed itself of the benefits and obligations of that particular forum. Cf. Hanson v. Denckla, 357 U. S. 235, 253 (1958).

       Nor do I agree with the Court that the respondents have conceded that their claims are not related to Helicol’s activities within the State of Texas. Although parts of their written and oral arguments before the Court proceed on the assumption that no such relationship exists, other portions suggest just the opposite:
      “If it is the concern of the Solicitor General [appearing for the United States as amicus curiae] that a holding for Respondents here will cause foreign companies to refrain from purchasing in the United States for fear of exposure to general jurisdiction on unrelated causes of action, such concern is not well founded.
      “Respondents’ cause is not dependent on a ruling that mere purchases in a state, together with incidental training for operating and maintaining the merchandise purchased can constitute the ties, contacts and relations necessary to justify jurisdiction over an unrelated cause of action. However, regular purchases and training coupled with other contacts, ties and relations may form the basis for jurisdiction.” Brief for Respondents 13-14. Thus, while the respondents’ position before this Court is admittedly less than clear, I believe it is preferable to address the specific jurisdiction of the Texas courts because Helicol’s contacts with Texas are in fact related to the underlying cause of action.

       The jury specifically found that “the pilot failed to keep the helicopter under proper control,” that “the helicopter was flown into a treetop fog condition, whereby the vision of the pilot was impaired,” that “such flying was negligence,” and that “such negligence . . . was a proximate cause of the crash.” See App. 167a-168a. On the basis of these findings, Helicol was ordered to pay over $1 million in damages to the respondents.

       Compare Von Mehren & Trautman, Jurisdiction to Adjudicate: A Suggested Analysis, 79 Harv. L. Rev. 1121, 1144-1163 (1966), with Brilmayer, How Contacts Count: Due Process Limitations on State Court Jurisdiction, 1980 S. Ct. Rev. 77, 80-88. See also Lilly, Jurisdiction Over Domestic and Alien Defendants, 69 Va. L. Rev. 85, 100-101, and n. 66 (1983).


author: Chief Justice Burger

text:
    PALMORE v. SIDOTI
    No. 82-1734.
    Argued February 22, 1984
    Decided April 25, 1984
    Burger, C. J., delivered the opinion for a unanimous Court.

      Robert J. Shapiro argued the cause and filed a brief for petitioner.

      John E. Hawtrey argued the cause and filed a brief for respondent.

      Briefs of amici curiae urging reversal were filed for the United States by Solicitor General Lee, Assistant Attorney General Reynolds, Deputy Solicitor General Wallace, Deputy Assistant Attorney General Cooper, Kathryn A. Oberly, and Brian K. Landsberg; for the American Civil Liberties Union Foundation et al. by Burt Neubome, William D. Zabel, Marcia Robinson Lowry, Thomas I. Atkins, Ira G. Greenberg, and Samuel Rabinove; for Leigh Earls et al. by Jay L. Carlson, James P. Tuite, Roderic V. 0. Boggs, James D. Weill, Justin J. Finger, Jeffrey

        P. Sinensky, Leslie K. Shedlin, and Marc D. Stem; and for the Women's Legal Defense Fund et al. by Sally Katzen, Lynn Bregman, and Nancy Polikoff.

   Chief Justice Burger

delivered the opinion of the Court.

We granted certiorari to review a judgment of a state court divesting a natural mother of the custody of her infant child because of her remarriage to a person of a different race.

I

When petitioner Linda Sidoti Palmore and respondent Anthony J. Sidoti, both Caucasians, were divorced in May 1980 in Florida, the mother was awarded custody of their 3-year-old daughter.

In September 1981 the father sought custody of the child by filing a petition to modify the prior judgment because of changed conditions. The change was that the child’s mother was then cohabiting with a Negro, Clarence Palmore, Jr., whom she married two months later. Additionally, the father made several allegations of instances in which the mother had not properly cared for the child.

After hearing testimony from both parties and considering a court counselor’s investigative report, the court noted that the father had made allegations about the child’s care, but the court made no findings with respect to these allegations. On the contrary, the court made a finding that “there is no issue as to either party’s devotion to the child, adequacy of housing facilities, or respectability of the new spouse of either parent.” App. to Pet. for Cert. 24.

The court then addressed the recommendations of the court counselor, who had made an earlier report “in [another] case coming out of this circuit also involving the social consequences of an interracial marriage. Niles v. Niles, 299 So. 2d 162.” Id., at 25. From this vague reference to that earlier case, the court turned to the present case and noted the counselor’s recommendation for a change in custody because “[t]he wife [petitioner] has chosen for herself and for her child, a life-style unacceptable to the father and to society. . . . The child ... is, or at school age will be, subject to environmental pressures not of choice.” Record 84 (emphasis added).

The court then concluded that the best interests of the child would be served by awarding custody to the father. The court’s rationale is contained in the following:

“The father’s evident resentment of the mother’s choice of a black partner is not sufficient to wrest custody from the mother. It is of some significance, however, that the mother did see fit to bring a man into her home and carry on a sexual relationship with him without being married to him. Such action tended to place gratification of her own desires ahead of her concern for the child’s future welfare. This Court feels that despite the strides that have been made in bettering relations between the races in this country, it is inevitable that Melanie will, if allowed to remain in her present situation and attains school age and thus more vulnerable to peer pressures, suffer from the social stigmatization that is sure to come.” App. to Pet. for Cert. 26-27 (emphasis added).

The Second District Court of Appeal affirmed without opinion, 426 So. 2d 34 (1982), thus denying the Florida Supreme Court jurisdiction to review the case. See Fla. Const., Art. V, §3(b)(3); Jenkins v. State, 385 So. 2d 1356 (Fla. 1980). We granted certiorari, 464 U. S. 913 (1983), and we reverse.

II

The judgment of a state court determining or reviewing a child custody decision is not ordinarily a likely candidate for review by this Court. However, the court’s opinion, after stating that the “father’s evident resentment of the mother’s choice of a black partner is not sufficient” to deprive her of custody, then turns to what it regarded as the damaging impact on the child from remaining in a racially mixed household. App. to Pet. for Cert. 26. This raises important federal concerns arising from the Constitution’s commitment to eradicating discrimination based on race.

The Florida court did not focus directly on the parental qualifications of the natural mother or her present husband, or indeed on the father’s qualifications to have custody of the child. The court found that “there is no issue as to either party’s devotion to the child, adequacy of housing facilities, or respectability of the new spouse of either parent.” Id., at 24. This, taken with the absence of any negative finding as to the quality of the care provided by the mother, constitutes a rejection of any claim of petitioner’s unfitness to continue the custody of her child.

The court correctly stated that the child’s welfare was the controlling factor. But that court was entirely candid and made no effort to place its holding on any ground other than race. Taking the court’s findings and rationale at face value, it is clear that the outcome would have been different had petitioner married a Caucasian male of similar respectability.

A core purpose of the Fourteenth Amendment was to do away with all governmentally imposed discrimination based on race. See Strauder v. West Virginia, 100 U. S. 303, 307-308, 310 (1880). Classifying persons according to their race is more likely to reflect racial prejudice than legitimate public concerns; the race, not the person, dictates the category. See Personnel Administrator of Mass. v. Feeney, 442 U. S. 256, 272 (1979). Such classifications are subject to the most exacting scrutiny; to pass constitutional muster, they must be justified by a compelling governmental interest and must be “necessary ... to the accomplishment” of their legitimate purpose, McLaughlin v. Florida, 379 U. S. 184, 196 (1964). See Loving v. Virginia, 388 U. S. 1, 11 (1967).

The State, of course, has a duty of the highest order to protect the interests of minor children, particularly those of tender years. In common with most states, Florida law mandates that custody determinations be made in the best interests of the children involved. Fla. Stat. § 61.13(2)(b)(l) (1983). The goal of granting custody based on the best interests of the child is indisputably a substantial governmental interest for purposes of the Equal Protection Clause.

It would ignore reality to suggest that racial and ethnic prejudices do not exist or that all manifestations of those prejudices have been eliminated. There is a risk that a child living with a stepparent of a different race may be subject to a variety of pressures and stresses not present if the child were living with parents of the same racial or ethnic origin.

The question, however, is whether the reality of private biases and the possible injury they might inflict are permissible considerations for removal of an infant child from the custody of its natural mother. We have little difficulty concluding that they are not. The Constitution cannot control such prejudices but neither can it tolerate them. Private biases may be outside the reach of the law, but the law cannot, directly or indirectly, give them effect. “Public officials sworn to uphold the Constitution may not avoid a constitutional duty by bowing to the hypothetical effects of private racial prejudice that they assume to be both widely and deeply held.” Palmer v. Thompson, 403 U. S. 217, 260-261 (1971) (White, J., dissenting).

This is by no means the first time that acknowledged racial prejudice has been invoked to justify racial classifications. In Buchanan v. Warley, 245 U. S. 60 (1917), for example, this Court invalidated a Kentucky law forbidding Negroes to buy homes in white neighborhoods.

“It is urged that this proposed segregation will promote the public peace by preventing race conflicts. Desirable as this is, and important as is the preservation of the public peace, this aim cannot be accomplished by laws or ordinances which deny rights created or protected by the Federal Constitution.” Id., at 81.

Whatever problems racially mixed households may pose for children in 1984 can no more support a denial of constitutional rights than could the stresses that residential integration was thought to entail in 1917. The effects of racial prejudice, however real, cannot justify a racial classification removing an infant child from the custody of its natural mother found to be an appropriate person to have such custody.

The judgment of the District Court of Appeal is reversed.

It is so ordered.

       The actions of state courts and judicial officers in their official capacity have long been held to be state action governed by the Fourteenth Amendment. Shelley v. Kraemer, 334 U. S. 1 (1948); Ex parte Virginia, 100 U. S. 339, 346-347 (1880).

       In light of our holding based on the Equal Protection Clause, we need not reach or resolve petitioner’s claim based on the Fourteenth Amendment’s Due Process Clause.

       This conclusion finds support in other cases as well. For instance, in Watson v. Memphis, 373 U. S. 526 (1963), city officials claimed that desegregation of city parks had to proceed slowly to “prevent interracial disturbances, violence, riots, and community confusion and turmoil.” Id., at 535. The Court found such predictions no more than “personal speculations or vague disquietudes,” id., at 536, and held that “constitutional rights may not be denied simply because of hostility to their assertion or exercise,” id., at 535. In Wright v. Georgia, 373 U. S. 284 (1963), the Court reversed a Negro defendant’s breach-of-peace conviction, holding that “the possibility of disorder by others cannot justify exclusion of persons from a place if they otherwise have a constitutional right (founded upon the Equal Protection Clause) to be present.” Id., at 293.