Union Carbide Corporation, Plaintiff-Appellee v. Joe B. Huddleston

Summary

The Tennessee Supreme Court affirmed a chancery court judgment awarding Union Carbide a $925,021 corporate excise tax refund plus statutory interest, holding that the capital gains from its 1986 sale and complete liquidation of seven lines of business and its Danbury headquarters building were 'nonbusiness earnings' under Tenn. Code Ann. § 67-4-804(a)(5) rather than 'business earnings' apportionable to Tennessee. Applying the transactional test from its prior precedent, the court reasoned that the divestitures—the first complete liquidations of entire profitable lines of business, at more than twelve times the magnitude of any prior year and with all proceeds distributed to shareholders rather than reinvested—did not arise from transactions and activity in the regular course of Union Carbide's trade or business. The court also expressly rejected the Commissioner's arguments that the gains were business earnings because the assets were integral to the business or were sold for the business purpose of defeating a hostile takeover, declining to adopt the 'functional test' used in other jurisdictions. Because the parties stipulated that nonbusiness gains could not be allocated to Tennessee, the classification resolved the case; the matter was remanded solely for determination of attorneys' fees and litigation expenses under Tenn. Code Ann. § 67-1-1803(d).