CHICAGO BRIDGE & IRON COMPANY, APPELLANT V. CATERPILLAR TRACTOR CO., ET AL. No. 81-349 In the Supreme Court of the United States October Term, 1981 On Appeal from the Supreme Court of Illinois Memorandum for the United States as Amicus Curiae TABLE OF CONTENTS Interest of the United States Discussion Conclusion Appendix INTEREST OF THE UNITED STATES The federal government is charged with the conduct of the Nation's foreign relations. To that end, the Constitution confers upon Congress the power "To regulate Commerce with foreign Nations * * * " (Article I, Section 8, clause 3) and authorizes the President, "by and with the Advice and Consent of the Senate, to make Treaties * * * " (Article II, Section 2, Clause 2). The watchword in the area of foreign commerce is federal uniformity. "In international relations and with respect to foreign intercourse and trade the people of the United States act through a single government with unified and adequate national power." Board of Trustees v. United States, 289 U.S. 48, 59 (1933). The United States submits that the imposition of the Illinois income tax on the apportioned combined worldwide business income of a unitary group of related corporations, including foreign corporations, impairs federal uniformity in an area where such uniformity is essential. The United States like most countries, employs the arms-length method of allocating income among commonly controlled corporations, and this method is mandated in numerous treaties, to which the United States is a party, that are intended to prevent international double taxation. Under the arms-length method, the income of each corporation is computed on a separate accounting basis under the assumption that each member of the group must deal with other members as if they were wholly separate entities owned by unrelated interests. Cf. 26 U.S.C. 482, and Treasury Regulations promulgated thereunder. The arms length method insures against artificial shifting of income and deductions among related businesses. The Illinois apportioned combined method of computing income that is at issue in this case, however, can result in the allocation of taxable income to a corporation that incurs a loss on a separate accounting basis computed in accordance with the arms-length method. Thus, a domestic corporation that operates at a loss and has no federal taxable income may be subject to state taxation on foreign source income earned by its foreign affiliates (e.g., income of a foreign parent or income of a foreign subsidiary that the domestic parent has not repatriated). These sharp differences between federal and international tax policies, on the one hand, and state tax policies on the other, undermine the federal government's ability to "speak with one voice when regulating commercial relations with foreign governments." Michelin Tire Corp. v. Wages, 423 U.S. 276, 285 (1976). Moreover, international double taxation can result if foreign source income subject to the state combined unitary method is also subject to tax in the foreign country in which it is earned. The federal tax laws provide a foreign tax credit in order to mitigate such international double taxation. See 26 U.S.C.(& Supp.III) 901 et seq. States employing the worldwide unitary method, however, do not allow a credit for foreign taxes. We are accordingly advised by the Departments of State and Treasury, the Department of Commerce, acting at the request of the Delegation of the Commission of the European Communities, and the United States Trade Representative, that a number of foreign governments have complained -- both officially and unofficially -- that the apportioned combined method empowered by Illinois and other states creates an irritant in their commercial relations with the United States. Retaliatory taxation may ensue, with consequent damage to international trade. Moreover, the method causes uncertainties because it differs from the federal arms-length standard that is generally accepted in international practice and in bilateral income tax conventions. Since this case poses much the same constitutional problems as existed in Japan Line, Ltd. v. County of Los Angeles, 441 U.S. 434 (1979), in which we participated as amicus curiae pursuant to the Court's invitation, we believe that the same federal interest likewise mandates participation here. DISCUSSION The question presented in this state income tax case is whether Illinois' imposition of its income tax on the apportioned combined worldwide business income of a group of related corporations, including foreign corporations, violates the Commerce Clause. Before turning to the merits, however, we feel obliged to address a jurisdictional question that has been raised by the amicus Financial Executives Institute. 1. Jurisdiction. In its brief, the Financial Executives Institute (FEI) argues (at 9), that the Court has no jurisdiction in this case because the state court judgment "would not be affected in any way by resolution of the constitutional questions raised in the jurisdictional statement." That state court judgment upholds Caterpillar Tractor Company's claim for a refund on the ground that "(t)he Unitary Apportionment Method * * * must be applied * * * in order to fairly represent (Caterpillar's) business activities in Illinois during" the years 1969-1974 (J.S. App. A1-A2). That judgment, the amicus submits, is limited to the particular situation in which a taxpayer uses the unitary method to lower its taxes and therefore does not turn on any of the constitutional questions. Indeed, the amicus asserts (Br. 9) that the appellant has conceded that there is no constitutional obstacle to granting Catepillar a refund based upon the combined reporting method (see J.S. 16-17). Hence, as the FEI sees the matter, there is no Article III case or controversy before the Court because none of the constitutional issues raised by the appellant can alter the judgment below. FEI therefore concludes that any disposition of the merits by this Court would be an advisory opinion. The jurisdictional problem arises on account of the peculiar Illinois procedure permitting the intervention of third parties, either as a matter of right "when the representation of the applicant's interest by existing parties is or may be inadequate and the applicant will or may be bound by an order or judgment in the action"; or as a matter of discretion "when an applicant's claim or defense and the main action have a question of law or fact in common." Illinois Civil Practice Act, Ill. Rev. Stat. ch. 110, Section 26.1 (1979) (see J.S. App. C6-C7). The judgment below upheld appellant's intervention as a matter of discretion and chose not to reach the question whether appellant could intervene as a matter of right (see J.S. App. C6-C9). This case arose on Caterpillar's claim for refund based upon the combined unitary method, to which the State acceded. Other computational questions were litigated between Caterpillar and the State. However, because appellant and the 15 other corporations would be subject to greater Illinois income tax liabilities if the unitary method were upheld, they intervened in the action. While it is characterized as an "intervenor" for state law purposes, appellant, in certain respects, bears a striking resemblance to an amicus curiae, insofar as its particular tax liability is not at issue and will not be determined in this case. The court below recognized as much because it did "not consider the intervenors to be seeking a declaratory judgment" (J.S. App. C8) -- a form of relief that cannot be granted in Illinois unless the plaintiff can establish a right to injunctive relief. But as an intervenor, appellant has the full right of a party to appeal and seek to alter the judgment below even though the taxpayer Caterpillar appears to be satisfied with that judgment. In that sense, appellant has far greater powers than an amicus, whose right to appear is derivative from the party it supports. Indeed, here, appellant's position against the apportioned combined method is at variance with that of both Caterpillar and the State of Illinois. And the court below held the Illinois statute applicable to "a particular set of facts (of Caterpillar's) as against the contention (of appellant) that such application is invalid on federal grounds." Japan Line, Ltd. v. County of Los Angeles, supra, 441 U.S.at 441. It therefore appears that the state statute has been sustained within the meaning of 28 U.S.C. 1257(2). Moreover, we submit that there is a case or controversy before the Court. First, if appellant prevails and obtains a reversal of the judgment below, it appears that Caterpillar will lose the refund awarded to it because that refund was based upon the validity of the apportioned combined method. Second, the ruling of the court below encompasses far more than a determination that Caterpillar was entitled to a refund on the peculiar fact that the apportioned combined method yielded a lower tax liability. On the contrary, the ruling in this case broadly upholds the apportioned combined method on both constitutional (J.S. App. C17-C20) as well as on state statutory grounds (J.S. App. C12-C17, C20-C21). /1/ To be sure, the record in this case does not support a claim that the application of the Illinois method produces multiple international taxation because the method produced a refund to Caterpillar for 1970-1974. /2/ But if appellant is correct that the constitutionality of the apportioned combined method to a group of corporations that includes Boreign corporations violates the Commerce Clause because it impairs federal uniformity in conducting foreign commerce, the judgment below in favor of Caterpillar will nevertheless be set aside. We therefore submit that there is a proper case or controversy before the Court. /3/ 2. It is settled beyond question that "the entire net income of a corporation, generated by interstate as well as intrastate activities, may be fairly apportioned among the States for tax purposes by formulas utilizing in-state aspect of interstate affairs." Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 460 (1959); Mobil Oil Corp. v. Commissioner of Taxes, 445 U.S. 425, 436-442 (1980). See also Underwood Typewriter Co. v. Chamberlain, 254 U.S. 113 (1920); Hans Rees' Sons v. North Carolina, 283 U.S. 123 (1931); Butler Brothers v. McColgan, 315 U.S. 501 (1942); Moorman Manufacturing Co. v. Bair, 437 U.S. 267 (1978). As the Court stated in Mobil Oil Corp. v. Commissioner of Taxes, supra, 445 U.S.at 439, "the linchpin of apportionability in the field of state income taxation is the unitiary-business principle" (footnote omitted). In accordance with this principle, the Court has upheld state apportionment formulas, like that of Illinois, which combine the income of several related corporations engaged in a "unitary" business. Income is allocated to the taxing state by multiplying the total net income of the enterprise by a percentage comprised of the average of the ratios of in-state property, payroll, and sales to total property, payroll and sales. See Section 304(a) of the Illinois Income Tax Act, (Ill. Rev. Stat. ch. 120) J.S. App. E16-E18; see also United States Steel Corp. v. Multistate Tax Commission, 434 U.S. 452, 475 n.25 (1978); Exxon Corp. v. Wisconsin Department of Revenue, 447 U.S. 207, 214 n.3 (1980); Mobil Oil Corp. v. Commissioner of Taxes, supra, 445 U.S.at 429-430 nn. 2-4. A unitary business is one in which all of the corporate constituents are involved in an economically functionally-related enterprise. As one leading commentator has observed, the "very essence of formulary apportionment (is) that where there are integrated, interdependent steps in the economic process carried on by a business enterprise, there is no logical or viable method for accurately separating out the profit attributable to one step in the economic process from other steps." J. Hellerstein, State and Local Taxation 400 (3d ed. 1969) . See also J.S. App. C11; Butler Brothers v. McColgan, supra, 315 U.S.at 508. Hans Rees' Sons v. North Carolina, supra, 283 U.S.at 133. Here, it is not disputed that Caterpillar and its 25 subsidiaries constitute a unitary business enterprise, and the Illinois Supreme Court so concluded (J.S. App. C11-C.2). Thus, if Caterpillar and its subsidiaries conducted their business solely within the United States, the foregoing precedents we have cited would establish that the Illinois combined apportionment method would pass muster under the Commerce Clause for purposes of allocating its income among the several states. But Caterpillar is not a domestic enterprise. On the contrary, it conducts a worldwide enterprise and "Commerce Clause scrutiny may well be more rigorous when a restraint on foreign commerce is alleged,'. Reeves, Inc. v. Stake, 447 U.S. 429, 438 n.9 (1980). We submit that the Court's analysis in Japan Line, Ltd. v. County of Los Angeles, supra, 441 U.S.at 434, undermines the basis of the decision below and invalidates the unitary apportionment method as applied to multinational corporate groups. /4/ In Japan Line, the Court struck down a California ad valorem property tax, as applied to a Japanese company's shipping containers, as unconstitutional under the Commerce Clause because it resulted in multiple taxation of the instrumentalities of foreign commerce, and prevented this Nation from "speaking with one voice" in regulating foreign trade and thus was inconsistent with Congress' power to "regulate Commerce with foreign Nations" (Article I, Section 8, Clause 3). In so holding, the Court pointed out that in the domestic context, "(t)he corollary of the apportionment principle, of course, is that no jurisdiction may tax the instrumentality in full * * * . The basis for this Court's approval of apportioned property taxation, in other words, has been its ability to enforce full apportionment by all potential taxing bodies" (441 U.S.at 447). But the Court's ability to avoid multiple taxation by ensuring full apportionment in the domestic context has no counterpart in the international sphere. As the Court explained (441 U.S.at 447-448; footnote omitted) -- (N)either this Court nor this Nation can ensure full apportionment when one of the taxing entities is a foreign sovereign. If an instrumentality of commerce is domiciled abroad, the country of domicile may have the right, consistently with the custom of nations, to impose a tax on its full value. If a State should seek to tax the same instrumentality on an apportioned basis, multiple taxation inevitably results. * * * Due to the absence of an authoritative tribunal capable of ensuring that the aggregation of taxes is computed on no more than one full value, a state tax, even though "fairly apportioned" to reflect an instrumentality's presence within the State, may subject foreign commerce "'to the risk of a double tax burden to which (domestic) commerce is not exposed, and which the commerce clause forbids.'" Evco v. Jones, 409 U.S. (91), at 94 (1972), quoting J. D. Adams Mfg. Co., 304 U.S.,at 311. Apart from the risk of multiple international taxation, Japan Line rests upon a second ground -- the need for federal uniformity in an area in which federal uniformity is essential. As the Court stated, "Foreign commerce is preeminently a matter of national concern" (441 U.S.at 448). Since "the Federal Government must speak with one voice when regulating commercial relations with foreign governments" (Michelin Tire Corp. v. Wages, 423 U.S. 276, 285 (1976), "(t)he need for federal uniformity is no less paramount to ascertaining the negative implications of Congress' power to 'regulate Commerce with foreign Nations' under the Commerce Clause" (footnote omitted) (441 U.S.at 449). As the Court further pointed out (id. at 450-451) (footnotes omitted): A state tax on instrumentalities of foreign commerce may frustrate the achievement of federal uniformity in several ways. If the State imposes an apportioned tax, international disputes over reconciling apportionment formulae may arise. If a novel state tax creates an asymmetry in the international tax structure, foreign nations :7 disadvantaged by the levy may retaliate against American-owned instrumentalities present in their jurisdiction. Such retaliation of necessity would be directed at American transportation equipment in general, not just that of the taxing State, so that the Nation as a whole would suffer. If other States followed the taxing State's example, various instrumentalities of commerce could be subjected to varying degrees of multiple taxation, a result that would plainly prevent this Nation from "speaking with one voice" in regulating foreign commerce. In determining whether a state tax in the international context is constitutionally valid, it is necessary to examine "whether * * * (it) creates a substantial risk of international multiple taxation, and, second, whether the tax prevents the Federal Government from 'speaking with one voice when regulating commercial relations with foreign governments'" (441 U.S.at 451). For "(i)f a state tax contravene either of these precepts, it is unconstitutional under the Commerce Clause (ibid.; emphasis supplied). We submit that analysis of the Illinois tax under the principles of Japan Line requires the conclusion that the combined apportionment method, applied to a unitary business with foreign corporate constituents, is barred by the Commerce Clause. Like the ad valorem tax at issue in Japan Line, the Illinois tax violates both precepts discussed in that decision insofar as it creates a substantial risk of international multiple taxation and impairs federal uniformity in the conduct of foreign relations. /5/ We turn now to an examination of the operation of the Illinois tax in the multinational corporate context. a. Risk of multiple international taxation. As we have pointed out (supra, pages 8-9), the Illinois apportionment formula allocates income on the basis of payroll, property and sales. Thus, in order to determine what portion of the worldwide income of a unitary group of corporations is allocable to Illinois, the total worldwide income of all the corporations of the group is multipled by a fraction which is the arithmetic average of the three ratios of in-state payroll, property, and sales to total payroll, property, and sales. See Mobil Oil Corp v. Commissioner of Taxes, supra, 445 U.S.at 429-430 n.4, 437 n.13. The theory underlying the three-factor formula, and indeed, the basis for its acceptability for Commerce Clause purposes, is that a dollar of payroll or property spent or a dollar of sales made in one state, produces roughly the same amount of taxable income as a dollar so spent or sales made in another state. See J. Hellerstein, supra, at 539. While this assumption may be sound within certain constitutional tolerances in a homogeneous economy such as the United States and thereby provides a basis for the division of interstate income, there is no comparable assumption that can be made in allocating the income of a multinational group. As the amici Container Corporation (Br. 14-18) and the Union of Industries of the European Community point out (Br. 10-11), there are great differences between the cost of property and payroll in the several states, on the one hand, and abroad, on the other, especially in developing nations. These differences would shift a disproportionate share of the foreign source income of a multinational group to state taxation if the three-factor formula were used. Moreover, state use of the unitary apportionment method, in contrasts to federal, and internationally accepted, use of the arms-length standard, creates substantial risk of international multiple taxation. For example, if a U.S. subsidiary engages in transactions with its foreign parent (which otherwise engages in no U.S. business activity) on an arms-length basis and the U.S. subsidiary operates at a loss, no portion of the foreign parent's income would, under the arms-length standard, be subjected to federal income tax. At the federal level, therefore, there would be no international double taxation because only the foreign country would subject that income to tax. Under the state unitary method, however, a portion of the foreign parent's income would be allocated to the U.S. subsidiary and would thus be subject to tax in the state. Accordingly, both the state and the foreign country would tax such apportioned income, thereby resulting in international double taxation of the same income. In this manner, the state unitary method frustrates the federal policy, consistent with international usage, of avoiding or mitigating international double taxation. /6/ To be sure, the application of the Illinois tax in this case does not, as the California tax in Japan Line, "creates multiple taxation in fact" (see 441 U.S.at 452 n.17). Indeed, the unitary method has produced a refund for Caterpillar, a fact which explains its support of Illinois' position here. But we believe that the foregoing considerations demonstrate that the Illinois tax would, in most cases, create a substantial risk of international multiple taxation that would be sufficient to invalidate the unitary method in the international context. It would nevertheless be understandable if the Court wishes to resolve the issue in a case with a more fully developed record in which the state tax can be shown in fact to impose multiple burdens. This course of action may be appropriate insofar as the Court has not decided "under what circumstances the mere risk of multiple taxation would invalidate a state tax, or whether this risk would be evaluated differently in foreign, as opposed to interstate commerce." Japan Line, Ltd. v. County of Los Angeles, supra, 441 U.S.at 452 n.17 (emphasis in original). Accordingly, if the Court wishes to consider the question in this case in the context of a case involving multiple taxation in fact, it may wish to defer decision in this case and note probable jurisdiction in Container Corporation of America v. Franchise Tax Board, No. 81-523. b. Federal Uniformity. Even assuming arguendo that there is an insufficient showing in this case that the Illinois unitary method creates a risk of international multiple taxation, the tax is still invalid because it impairs federal uniformity. Under Japan Line, a state tax is invalid if it prevents the federal government from "speaking with one voice" in international trade, "(I)f it be otherwise, a single State can, at her pleasure, embroil us in disastrous quarrels with other nations." Chy Lung v. Freeman, 92 U.S. 275, 280 (1875). As we have pointed out (supra, page 2), the United States and most foreign countries use the arms-length method of allocating income between corporations. Illinois' variant unitary method impairs the otherwise uniform international custom that is the basis of the treaties between the United States and numerous foreign countries that are intended to prevent international double taxation of income. Indeed, the Secretary of the Treasury and the Secretary of State have recently received diplomatic communications from the Governments of Great Britain and Canada, complaining about the state unitary method and emphasizing its incompatibility with international practice (see Appendix, infra, 1a-9a). Similarly, as appellant points out (J.S. 20), all nine members of the European Common Market joined in a demarche emphasizing the incompatibility of worldwide combined reporting with internationally accepted rules and principles of the OECD. "The risk of retaliation by (foreign countries), under these circumstances, is acute, and such retaliation of necessity would be felt by the Nation as a whole" (footnote omitted) (Japan Line, Ltd. v. County of Los Angeles, supra, 441 U.S.at 453). In this respect, the amicus Union of Industries of the European Community (Br. 7-9) points out that the application of the state unitary method may violate certain treaties of friendship, commerce and navigation. See especially Article IX of the Convention with France which limits state taxation of French companies to income "'directly related to their activities within those territories'" (Br. 9 n.12). In sum, "the freedom of the States to formulate independent policy in (the) area (of commerce) may have to yield to an overriding national interest in uniformity" Moorman Manufacturing Co. v. Bair, supra, 437 U.S.at 280. "We cannot have trade and commerce in world markets and international waters exclusively on our terms, governed by our laws, and resolved in our courts." Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 9 (1972). The income taxation of multinational businesses is thus a matter that is subject only to a national rule conformable with the practice of nations or adopted pursuant to the President's authority "by and with the Advice and Consent of the Senate to make Treaties * * * " or Congress' power "(t)o regulate Commerce with Foreign Nations * * * ." "(Illinois), by its unilateral act, cannot be permitted to place these impediments before this Nation's conduct of its foreign relations and its foreign trade." Japan Line, Ltd. v. County of Los Angeles, supra, 441 U.S.at 453. /7/ 3. If, as we submit, the Court concludes that the Illinois combined reporting requirement either: (a) creates a substantial risk of international multiple taxation, or (b) impairs federal uniformity in the conduct of foreign relations, that is the end of the matter, and the judgment below should be reversed. In those circumstances, the Illinois combined reporting method could not be constitutionally applied to any multinational group of corporations -- a result we believe to be compelled by the Commerce Clause. If the Court concludes, however, that the record in this case is inadequate to support such a disposition, we urge it to defer resolution of the issue to another case which has a more fully developed record. Whatever ruling it may render here, the Court should be aware that neither this case nor any case presently pending before it presents the issue in the context of a unitary business consisting of a U.S. subsidiary whose parent corporation is foreign. It may well be that the multiple tax burdens and the impairment to federal uniformity in international trade caused by the state apportionment method will be more easily demonstrated in a case involving a corporate group with a foreign parent. In that case, there will be, in addition to the considerations we have already pointed out, other burdens that the state unitary method will impose on international trade and foreign relations. For example, a foreign parent corporation with no direct U.S. activities would generally maintain its financial accounts according to local (i.e. foreign) accounting principles and in the local currency. Conversion of such accounts to conform to U.S. accounting principles and to the individual states' tax accounting rules, as well as conversion of all entries into U.S. dollars (which are required for apportionment under the state unitary method), pose a severe administrative and financial burden on the foreign parent corporation and other foreign affiliates. Moreover, there will be further burdens on international trade resulting from the demands by state tax authorities that the foreign corporation produce and explain its records of business transactions that are entirely unrelated to activities within the United States. Accordingly, the Court should not decide this case on any ground that would foreclose any claims that may be raised in a future case involving the imposition of the combined reporting method to a group of corporations with a foreign parent. CONCLUSION For the reasons stated, the judgment of the Supreme Court of Illinois should be reversed. Respectfully submitted. REX E. LEE Solicitor General STUART A. SMITH Assistant to the Solicitor General January 1982 /1/ Moreover, appellant has not conceded that there is no constitutional obstacle to granting Caterpillar a refund based upon the combined reporting method. The reference to the Jurisdictional Statement (at 16-17) cited by amicus FEI as evidence of such a concession simply acknowledges "that worldwide combination may result in a State income taX advantage for some corporations" (J.S. 16) and that this fact explains Caterpillar's support for this method of computation. But appellant amplified its position by further stating as follows: 'However, the fact that worldwide combined reporting may result in unjustifiable undertaxation in some instances cannot justify unconstitutional overtaxation in others. This is not a case where two wrongs make a right" (id. at 17; emphasis in original). /2/ The Illinois Appellate Court rejected Caterpillar's claim that the apportioned combined apportioned method was not applicable for 1969 (when it yielded a greater tax liability) (see J.S. App. C4-C5) . Caterpillar did not appeal this aspect of the case to the Illinois Supreme Court (J.S. App. C6). There was also a computational dispute between Caterpillar and the State of Illinois that was resolved by the decision below (see J.S. App. C21-C23). That issue is not before this Court. /3/ The amicus FEI further argues (Br. 16-24) that the record in this case is inadequate for the Court to decide the constitutional issues raised by appellant. In our view, the case has a decidedly abstract quality because of the absence of any record detailing appellant's business structure and international tax burdens. As we point out (infra, pages 18-19), the Court should therefore refrain from rendering a broad ruling that might foreclose future multiple tax claims that may be made on a more concrete set of facts, or in a case involving a foreign parent with U.S. subsidiaries. If the Court ultimately concludes that the record in this case is inadequate for the resolution of the issue in this case, it may wish to defer decision here and note probable jurisdiction in Container Corporation of America v. Francise Tax Board, No. 81-523, which contains a more fully developed record. /4/ Bass, Ratcliff & Gretton, Ltd. v. State Tax Commission, 266 U.S. 271 (1924) has no bearing on the question presented here. That case involved the application of a New York apportionment formula to a single British corporation which manufactured its product in England and sold it in New York through branch offices. See id. at 282. The taxpayer did not conduct its business in multinational corporate group form. There was accordingly no occasion for the Court to consider the constitutionality of the combined apportionment method and its inconsistency with the arms-length method in a multinational corporate setting. Compare Hans Rees' Sons v. North Carolina, supra, 283 U.S.at 132-133, with Mobil Oil Corp. v. Commissioner of Taxes, supra, 445 U.S.at 438-439, 440-441. /5/ Hence, there is no basis for the Illinois Supreme Court's conclusion (J.S. App. C18) that Japan Line is "obviously distinguishable" because "(t)his appeal does not involve the multiple taxation of items or instrumentalities of foreign commerce nor does unitary reporting affect Federal authority in governing foreign commerce." The same considerations of international multiple taxation and federal uniformity in the conduct of foreign relations upon which Japan Line rests are equally applicable to a state income tax. /6/ As we have pointed out (supra, page 3), the federal income tax law mitigates international double taxation through the foreign tax credit. See 26 U.S.C.(& Supp.III) 901 et seq. Under these provisions, foreign income taxes that are imposed on foreign source income that is also subjected to U.S. taxation can be credited against that U.S. tax liability. In marked contrast, the state unitary method at issue has no comparable provision. /7/ Mobil Oil Corp. v. Commissioner of Taxes, supra, 445 U.S.at 425, upon which the decision below relied (J.S. App. C18), has no bearing on this case. There, the Court held that a New York corporation having a place of business in Vermont could not object, on Commerce Clause grounds, to the imposition of a Vermont corporate income tax which allocated a portion of foreign source dividend income paid by its foreign subsidiaries. The taxpayer, however, admitted that New York, as the state of commercial domicile, could tax such foreign-source dividends in full. Hence, Japan Line was not implicated because there was no issue of international multiple taxation (see 441 U.S.at 446-447, 448). Appendix Omitted