Question: Mead Corporation an Ohio corporation in the business of producing
Mead Corporation, an Ohio corporation in the business of producing and selling paper, packaging, and school and office supplies, also owned Lexis/Nexis, the electronic research service. Either as a separate subsidiary or as a division of Mead, Lexis was subject to Mead's oversight, but Mead did not manage its day-to-day affairs. Mead was headquartered in Ohio, while a separate management team ran Lexis out of its headquarters in Illinois. The two businesses maintained separate manufacturing, sales, and distribution facilities, as well as separate accounting, legal, human resources, credit and collections, purchasing, and marketing departments. Mead's involvement was generally limited to approving Lexis's annual business plan and any significant corporate transactions that Lexis wished to undertake. Mead managed Lexis's free cash, which was swept nightly from Lexis's bank accounts into an account maintained by Mead. The cash was reinvested in Lexis's business, but Mead decided how to invest it. Neither business was required to purchase goods or services from the other. Lexis, for example, was not required to purchase its paper supply from Mead and in fact purchased most of its paper from other suppliers. Neither received any discount on goods or services purchased from the other, and neither was a significant customer of the other. In 1994, Mead sold Lexis for $1.5 billion, realizing a capital gain of over $1 billion. Mead did not report any of this gain as business income on its 1994 Illinois tax return, taking the position that it was nonbusiness income and should be allocated entirely to Mead's domestic state, Ohio. Did the Supreme Court of the United States agree with Mead?
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