Ex parte Uniroyal Tire Co
In Ex parte Uniroyal Tire Co., 779 So. 2d 227, 238 (Ala. 2000) the Uniroyal Tire Company (Uniroyal) entered into a partnership with B.F. Goodrich Company. Thereafter, Uniroyal's only asset was its partnership interest; income from the partnership was treated as business income. In 1990, Uniroyal sold its entire partnership interest, realizing a gain of approximately 99.7 million dollars. On its 1990 Alabama tax return, Uniroyal treated the gain as nonbusiness income. The State Department of Revenue disagreed, maintaining that the income was business income and assessing corporate income tax accordingly.
The Alabama Supreme Court first observed that the word "and" in the phrase "acquisition, management, and disposition of the property" was conjunctive, not disjunctive. Id. at 233. According to the Alabama Supreme Court, reading the word "or" in place of "and" would allow the statute to be construed so broadly as to eclipse entirely the transactional test. Id. at 235. The functional test, the Court pointed out, would "essentially render nugatory the transactional test." Id. The Court then noted that the legislature would not be presumed to have enacted a futile, meaningless statute. Id. at 236.
The Alabama Supreme Court posited that the "complete liquidation and cessation of business does not generate business income under the transactional test," because such events do not take place in the regular course of the taxpayer's business. Id.
The Court explained that: "Simply stated, Uniroyal was not in business to go out of business. Going out of business is not a 'regular' business activity." Id. at 237. Thus, Uniroyal's gain was found to be nonbusiness income. Id. at 238.