National Holdings, Inc. v. Zehnder ( 2007 )

NO. 4-06-0148 Filed 1/19/07
IN THE APPELLATE COURT
OF ILLINOIS
FOURTH DISTRICT
NATIONAL HOLDINGS, INC., ) Appeal from
Plaintiff-Appellee, ) Circuit Court of
v. ) Sangamon County
KENNETH E. ZEHNDER, Director of the ) No. 98CH443
Department of Revenue of the State of )
Illinois; and JUDY BAAR TOPINKA, ) Honorable
Illinois State Treasurer, ) John W. Belz,
Defendants-Appellants. ) Judge Presiding.
______________________________________________________________
JUSTICE TURNER delivered the opinion of the court:
In October 1998, plaintiff, National Holdings, Inc.
(National Holdings), filed a complaint pursuant to the State
Officers and Employees Money Disposition Act (Act) (30 ILCS 230/1
through 6a (West 1998)) against defendants, Kenneth E. Zehnder,
Director of the Department of Revenue of the State of Illinois,
and Judy Baar Topinka, Illinois State Treasurer (collectively
Department), following the Department's notice of income-tax
deficiency under the Illinois Income Tax Act (Income Tax Act) (35
ILCS 5/101 through 1701 (West 1994)). National Holdings made a
protested payment of $527,549 pursuant to the Act. The parties
later filed cross-motions for summary judgment, and in January
2006, the trial court granted summary judgment in favor of
National Holdings.
On appeal, defendants argue the trial court erred in
holding National Holdings' gain was nonbusiness income. We
affirm.
I. BACKGROUND
At all times relevant to the litigation, all of the
capital stock of National Holdings was owned and controlled by
Loblaw Companies, Ltd. (Loblaw), a Canadian company. National
Holdings, a Delaware corporation, owned 100% of the capital stock
of National Tea Co. (National Tea), an Illinois corporation.
National Tea owned 100% of the capital stock of National Super
Markets, Inc. (Super Markets), a Michigan corporation. Prior to
June 1995, National Tea and Super Markets were engaged in the
retail grocery business with stores in several states, including
15 in Illinois. National Tea and Super Markets, along with other
affiliated corporations, filed combined Illinois income-tax
returns as a unitary business group. National Holdings paid
Illinois income tax on that part of the group's income appor-
tioned to Illinois.
On June 12, 1995, Super Markets and National Tea
conveyed title and ownership of their assets to Schnuck Markets,
Inc., pursuant to an asset-purchase agreement and received
payment of $398,798,000. Of that amount, $191,368,465 was
retained in a liability reserve for Super Markets and National
Tea to pay certain historical liabilities. The net proceeds of
the sale totaled $207,429,535. Super Markets and National Tea
ceased to operate their retail grocery business and were there-
after involved only in the collection of receivables, the payment
of liabilities, and other administrative activities.
On September 25, 1995, Super Markets distributed all of
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its assets to National Tea, and its corporate existence under
Michigan law terminated. On September 29, 1995, National Tea's
board of directors declared the net proceeds from the sale of the
stores totaling $207,429,535 as a dividend and paid it all to
National Holdings.
In November 1995, National Holdings contributed the
net-sale proceeds to Glendel, Inc. (Glendel), a wholly owned
subsidiary of Loblaw. Glendel's only assets consisted of those
proceeds, which were invested by a third-party fiduciary in
interest-bearing debt securities that included United States
treasury bills, bonds, notes, and other low-risk government
securities. None of the proceeds from the sale of assets was
ever used in conducting business in the United States. The sale
represented a complete disposition of Loblaw's retail business in
the United States.
In October 1996, National Holdings filed a combined
Illinois income-tax return for itself and its subsidiaries that
included National Tea and Super Markets. On its 1995 return,
National Holdings reported nonbusiness income of $100,888,747
from the sale of Super Markets' and National Tea's retail
grocery-store assets. Of that amount, $7,834,664 was allocated
as taxable nonbusiness Illinois income. None of the income from
the sale of assets to Schnuck Markets was reported as business
income in filing any state income-tax return outside Illinois.
In September 1998, upon audit of National Holdings'
1995 Illinois income-tax return, the Department's auditor rechar-
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acterized the $100,888,747 gain from the sale of assets as
apportionable business income. The Department determined its
decision resulted in $13,855,455 in additional income being
apportioned to Illinois. Thereafter, the Department issued a
notice of deficiency to National Holdings, asserting a deficiency
of $527,549 that consisted of $446,671 in taxes plus $80,878 in
interest. National Holdings paid the amount under protest (see
30 ILCS 230/2a (West 1998)) and filed its complaint contesting
the Department's characterization of the gain as business income.
The trial court later enjoined defendants from transferring the
money into the treasury's general fund.
In June 2005, the parties jointly filed a stipulation
of facts and agreed the sole issue was whether the gain from the
sale of the retail grocery stores constituted business or non-
business income as defined by section 1501(a)(1) of the Income
Tax Act (35 ILCS 5/1501(a)(1) (West 1994)). In September 2005,
National Holdings filed a motion for summary judgment. In
October 2005, defendants filed their motion for summary judgment.
In January 2006, the trial court found for plaintiff
and against defendants. The court found National Tea and Super
Markets sold all their assets to Schnuck Markets in June 1995 and
all proceeds of this liquidation sale were distributed to Nation-
al Holdings. Also, these proceeds were never used to conduct
business in the United States and were distributed to sharehold-
ers. Based on case law and the plain language of section
1501(a), the court held the gain from the asset sale was nonbusi-
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ness income because it was a cessation of a business and not used
in National Holdings' ongoing business operations. This appeal
followed.
II. ANALYSIS
A. Standard of Review
"Summary judgment is proper where, when viewed in the
light most favorable to the nonmoving party, the pleadings,
depositions, admissions, and affidavits on file reveal that there
is no genuine issue as to any material fact and that the moving
party is entitled to a judgment as a matter of law." Northern
Illinois Emergency Physicians v. Landau, Omahana & Kopka, Ltd.,
216 Ill. 2d 294, 305, 837 N.E.2d 99, 106 (2005). When both
parties move for summary judgment, "they agree that (1) no
material issue of fact exists; and (2) only a question of law is
involved." Subway Restaurants of Bloomington-Normal, Inc. v.
Topinka, 322 Ill. App. 3d 376, 381, 751 N.E.2d 203, 208 (2001).
On appeal, our review of a trial court's order granting summary
judgment is de novo. Harrison v. Hardin County Community Unit
School District No. 1, 197 Ill. 2d 466, 470-71, 758 N.E.2d 848,
851 (2001).
B. Business or Nonbusiness Income
Defendants argue the trial court erred in finding
National Holdings' gain was nonbusiness income. We disagree.
The Income Tax Act, derived from the Uniform Division
of Income for Tax Purposes Act (UDITPA), "addresses when income
of a nonresident corporation conducting business within Illinois
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is subject to taxation by the State." American States Insurance
Co. v. Hamer, 352 Ill. App. 3d 521, 525, 816 N.E.2d 659, 663
(2004); see also Blessing/White, Inc. v. Zehnder, 329 Ill. App.
3d 714, 718, 768 N.E.2d 332, 336 (2002). "Under the statute,
foreign corporations are required to pay taxes in proportion to
the amount of their income-producing activities." American
States, 352 Ill. App. 3d at 525-26, 816 N.E.2d at 663.
The Income Tax Act establishes two methods, apportion-
ment and allocation, by which corporate income will be divided
among Illinois and other jurisdictions wherein the taxpayer
conducts business. American States, 352 Ill. App. 3d at 526, 816
N.E.2d at 663; Blessing/White, 329 Ill. App. 3d at 718-19, 768
N.E.2d at 336.
"When income is allocated, it is all assigned
to one particular state for taxing purposes,
generally the commercial domicile of the
company or the situs of the income-producing
property. 35 ILCS 5/303 (West 1996). When a
business' income is apportioned, it is di-
vided up for taxing purposes among the vari-
ous states in which the business operates.
35 ILCS 5/304(a) (West 1996). Apportionment
is intended to assign the amount of income to
a state that is proportional to the amount of
income-producing activities in that state.
Business income is apportioned and nonbusi-
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ness income is allocated." Automatic Data
Processing, Inc. v. Department of Revenue,
313 Ill. App. 3d 433, 438, 729 N.E.2d 897,
902 (2000).
The taxpayer bears the burden of establishing that income is
nonbusiness income. Texaco-Cities Service Pipeline Co. v. McGaw,
182 Ill. 2d 262, 268, 695 N.E.2d 481, 484 (1998).
Prior to July 30, 2004, the Income Tax Act defined
"business income" as:
"income arising from transactions and activ-
ity in the regular course of the taxpayer's
trade or business ***, and includes income
from tangible and intangible property if the
acquisition, management, and disposition of
the property constitute integral parts of the
taxpayer's regular trade or business opera-
tions." 35 ILCS 5/1501(a)(1) (West 1994).
Income falling within this definition is subject to apportionment
through the use of a three-factor formula that takes into account
the corporation's property, payroll, and sales. American States,
352 Ill. App. 3d at 526, 816 N.E.2d at 663; Blessing/White, 329
Ill. App. 3d at 719, 768 N.E.2d at 336. We note that, effective
July 30, 2004, the General Assembly amended section 1501(a)(1)
and now defines "business income" as "all income that may be
treated as apportionable business income under the Constitution
of the United States." 35 ILCS 5/1501(a)(1) (West 2004).
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"Nonbusiness income" has been defined as "all income
other than business income or compensation." 35 ILCS
5/1501(a)(13) (West 1994). "For taxing purposes, nonbusiness
income is allocated to a particular state, generally the state in
which the corporation is domiciled or in which the income-produ-
cing property is situated." American States, 352 Ill. App. 3d at
526, 816 N.E.2d at 663.
Both parties acknowledge, as did the trial court, that
the seminal case interpreting the terms "business income" and
"nonbusiness income" as defined in section 1501(a) is our supreme
court's decision in Texaco-Cities. In that case, the court
followed the approach of other jurisdictions that have adopted
UDITPA and found the earlier version of section 1501(a)(1)
encompassed two alternative and distinct approaches for determin-
ing whether gain realized from the sale of a capital asset may be
apportioned. Texaco-Cities, 182 Ill. 2d at 268, 695 N.E.2d at
484. The first approach, the "transactional" test, is reflected
in the first clause of the definition stating business income is
"income arising from transactions and activity in the regular
course of the taxpayer's trade or business." 35 ILCS
5/1501(a)(1) (West 1994); Texaco-Cities, 182 Ill. 2d at 268, 695
N.E.2d at 484. In the case sub judice, the Department does not
contend the gain at issue constitutes business income under the
transactional test. Instead, the Department argues National
Holdings' gain from the sale of National Tea's and Super Markets'
assets constitute business income under the functional test.
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Under that second approach, the "functional" test,
found in the second clause of section 1501(a)(1), business income
is defined as including "income from tangible and intangible
property if the acquisition, management, and disposition of the
property constitute integral parts of the taxpayer's regular
trade or business operations." 35 ILCS 5/1501(a)(1) (West 1994);
Texaco-Cities, 182 Ill. 2d at 270, 695 N.E.2d at 485. The
supreme court noted "the words 'acquisition, management, and
disposition' suggest elements typically associated with the
'keeping' of corporate property, or *** the 'conditions of
ownership' of corporate property." Texaco-Cities, 182 Ill. 2d at
271, 695 N.E.2d at 485.
"The functional test classifies as business
income all gain from the disposition of a
capital asset if the asset was 'used by the
taxpayer in its regular trade or business
operations.' *** [T]he second clause of
section 1501(a)(1) focuses upon the role or
function of the property [disposed of] as
being integral to regular business opera-
tions. The use of a capital asset in the
taxpayer's regular trade or business indis-
putably renders that asset an integral part
of the taxpayer's regular business opera-
tions." Texaco-Cities, 182 Ill. 2d at 272,
695 N.E.2d at 486.
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In Texaco-Cities, 182 Ill. 2d at 265, 695 N.E.2d at
483, the taxpayer, a Delaware corporation with its principal
offices in Texas, was in the business of transporting crude oil
and other petroleum products by pipelines, some of which ran
through Illinois. During the 1983 tax year, the taxpayer sold
major segments of its pipeline assets, including its entire
contingent of pipeline assets in Illinois. Texaco-Cities, 182
Ill. 2d at 265, 695 N.E.2d at 483. The taxpayer realized a gain
of $9,987,176 and reported the income from its sale as nonbusi-
ness income on its tax return for 1983. Texaco-Cities, 182 Ill.
2d at 265, 695 N.E.2d at 483. The Department conducted an audit
and reclassified the gain as business income subject to appor-
tionment, finding the sale constituted an integral part of the
taxpayer's business operations. Texaco-Cities, 182 Ill. 2d at
265-66, 695 N.E.2d at 483. The taxpayer filed a protest, but
ultimately, the Department's characterization of the gain as
business income was upheld by the trial and appellate courts.
Texaco-Cities, 182 Ill. 2d at 266-67, 695 N.E.2d at 483-84.
The supreme court found the functional test contained
in "section 1501(a)(1) focuses upon the role or function of the
property as being integral to regular business operations."
Texaco-Cities, 182 Ill. 2d at 272, 695 N.E.2d at 486. Thus, the
taxpayer's use of a capital asset in its regular trade or busi-
ness "indisputably renders that asset an integral part of the
taxpayer's regular business operations." Texaco-Cities, 182 Ill.
2d at 272, 695 N.E.2d at 486.
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The supreme court noted Texaco-Cities was in the
business of pipeline transportation, the pipelines sold were used
to transport petroleum in the regular course of business, and
thus the pipelines were used for the production of income.
Texaco-Cities, 182 Ill. 2d at 273, 695 N.E.2d at 486. Applying a
functional test, the court held the gain represented apportion-
able business income under the Income Tax Act. Texaco-Cities,
182 Ill. 2d at 274, 695 N.E.2d at 487.
The supreme court then examined and distinguished the
Pennsylvania Supreme Court's decision in Laurel Pipe Line Co. v.
Commonwealth of Pennsylvania Board of Finance & Revenue, 537 Pa.
205, 642 A.2d 472 (1994). There, the proceeds from the sale of
an independent pipeline by a company in the business of transpor-
ting petroleum were determined to be nonbusiness income. The
court in Laurel Pipe Line found the sale a liquidation of a
separate and distinct aspect of the taxpayer's business, that
being all of its pipeline operations in a specific region, and
thus it could be "characterized as a partial liquidation which
has changed the structure of the taxpayer's business." Laurel
Pipe Line, 537 Pa. at 214, 642 A.2d at 477, citing McVean &
Barlow, Inc. v. New Mexico Bureau of Revenue, 88 N.M. 521, 543
P.2d 489 (1975).
In distinguishing Texaco-Cities from Laurel Pipe Line,
the Illinois Supreme Court found the sale by Texaco-Cities did
not represent a liquidation and cessation of its business opera-
tions or a separate and distinct portion thereof. Texaco-Cities,
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182 Ill. 2d at 273, 695 N.E.2d at 486-87. Further, the court
found "the sales proceeds were invested right back into that
business rather than being disseminated to its shareholders."
Texaco-Cities, 182 Ill. 2d at 273, 695 N.E.2d at 486-87. The
court concluded the gain from the sale was properly classified as
business income. Texaco-Cities, 182 Ill. 2d at 274, 695 N.E.2d
at 487.
Following the decisions in Texaco-Cities and Laurel
Pipe Line, courts have recognized a business-liquidation excep-
tion to the functional test. See Blessing/White, 329 Ill. App.
3d at 726, 768 N.E.2d at 341 (Texaco-Cities "tacitly recognizes
the distinctive nature of corporate liquidations resulting in a
discontinuation of business activity"); American States, 352 Ill.
App. 3d at 530, 816 N.E.2d at 666 (reaffirming Blessing/White);
Shakkour v. Hamer, No. 1-04-1646, slip op. at 9 (November 9,
2006), Ill. App. 3d , , N.E.2d , (wherein
the Department acknowledged the business-liquidation exception
set forth in Blessing/White).
In Blessing/White, 329 Ill. App. 3d at 717, 768 N.E.2d
at 335, Blessing/White, Inc., a New Jersey corporation, was
engaged in human-resource consultation with a sales office in
Chicago. In 1989, Blessing/White sold substantially all of its
assets that had been used in the regular course of business and
as part of its income-producing activities in Illinois. There-
after, Blessing/White ceased its business activities and distrib-
uted nearly all of the sale proceeds to Blessing and White.
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Blessing/White, 329 Ill. App. 3d at 717, 768 N.E.2d at 335.
After an audit, the Department reclassified the gain as business
income apportionable to Illinois and assessed a tax deficiency.
Blessing/White, 329 Ill. App. 3d at 717, 768 N.E.2d at 335.
In examining the Texaco-Cities case, the First District
noted the supreme court determined "the functional test for
business income is satisfied where the asset disposed of was used
by the taxpayer as an integral part of its regular trade or
business operations." Blessing/White, 329 Ill. App. 3d at 723,
768 N.E.2d at 339. However, the First District found the supreme
court's opinion allowed the use of a modified form of the func-
tional test "when the disposition of assets was made pursuant to
a corporate liquidation in cessation of business."
Blessing/White, 329 Ill. App. 3d at 724, 768 N.E.2d at 340.
In the case before it, the First District found the
disposition of assets amounted to a liquidation of
Blessing/White's business property, "reflecting an extraordinary,
one-time corporate event and marking the cessation of the com-
pany's business activities, including those conducted in Illi-
nois." Blessing/White, 329 Ill. App. 3d at 728, 768 N.E.2d at
343. Further, the proceeds were not used to support an ongoing
business concern but were disbursed in their entirety to the
shareholders. Blessing/White, 329 Ill. App. 3d at 728, 768
N.E.2d at 343. Thus, as the liquidation of assets was not
integral to the company's regular business operations, the gain
did not constitute business income under the functional approach.
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Blessing/White, 329 Ill. App. 3d at 728, 768 N.E.2d at 343.
In American States, 352 Ill. App. 3d at 531, 816 N.E.2d
at 667, the First District interpreted Texaco-Cities to stand for
the proposition that without "evidence that the sale was a
cessation of a separate and distinct portion of Texaco-Cities'
business," a gain would be properly classified as business
income. The First District found the transaction at issue
"involved the cessation of a separate and distinct portion of the
business of the former shareholders of American States" and
concluded the gain constituted nonbusiness income. American
States, 352 Ill. App. 3d at 532, 816 N.E.2d at 668.
In the First District's recent opinion in Shakkour,
slip op. at 2, Ill. App. 3d at , N.E.2d at , the
taxpayer, a nonresident of Illinois, was a general partner of
O'Connor Partners, an Illinois partnership. O'Connor Partners
was owned in part by O'Connor & Associates, also an Illinois
partnership, which developed intellectual property known as the
"Trading Technology." Shakkour, slip op. at 2, Ill. App. 3d
at , N.E.2d at . O'Connor Partners and Swiss Bank
organized a limited partnership known as SBC/OC Services, L.P.
Later, O'Connor & Associates contributed the Trading Technology
to O'Connor Partners as a capital contribution. Shakkour, slip
op. at 3, Ill. App. 3d at , N.E.2d at . In 1992,
O'Connor Partners sold its general partnership interest in SBC/OC
Services and the Trading Technology to Swiss Bank. The Trading
Technology was sold for fixed and contingent payments, and Swiss
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Bank took over use of it from O'Connor Partners.
The taxpayer did not report her distributive share of
O'Connor Partners' income received from the sale of the Trading
Technology as business income on her Illinois income-tax return
but did report it on her New York and Connecticut returns.
Shakkour, slip op. at 4, Ill. App. 3d at , N.E.2d at
. The Department issued a notice of deficiency, and Shakkour
paid under protest. The trial court found the sale of the
Trading Technology was an extraordinary event marking the cessa-
tion of O'Connor Partners' business activities and the sale
proceeds were distributed to the partners. Shakkour, slip op. at
5, Ill. App. 3d at , N.E.2d at . The court found
the sale fell within the business-liquidation exception to the
functional test and Shakkour's share was not allocable to Illi-
nois.
On appeal, the First District examined the holdings in
the like cases of Blessing/White and American States. Shakkour,
slip op. at 7-8, Ill. App. 3d at , N.E.2d at . In
noting Blessing/White's focus on the modified form of the func-
tional test, the court found O'Connor Partners disposed of the
Trading Technology asset, the disposition marked the cessation of
business operations, and the proceeds were not reinvested in
operations but were distributed to shareholders. Shakkour, slip
op. at 11, Ill. App. 3d at , N.E.2d at . The court
concluded "the sale was an extraordinary event that was a marked
departure from its previous business of licensing the Trading
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Technology," and the income should be classified as nonbusiness
income. Shakkour, slip op. at 14, Ill. App. 3d at ,
N.E.2d at .
In this case, defendants contend the First District's
decisions in Blessing/White and American States should not be
followed because Texaco-Cities did not recognize the business-
liquidation exception. We disagree.
In Texaco-Cities, the supreme court found the func-
tional test for business income is focused on whether the asset
disposed of was used by the taxpayer as an integral part of its
regular business operations. Texaco-Cities, 182 Ill. 2d at 272,
695 N.E.2d at 486. However, a complete reading of the opinion
indicates a modified form of the functional test is appropriate
if the disposition of assets was made pursuant to a corporate
liquidation in cessation of the business.
The supreme court's discussion and ultimate distin-
guishment of Laurel Pipe Line to the facts before it is quite
telling. In Laurel Pipe Line, the Pennsylvania Supreme Court
considered the totality of circumstances surrounding the sale and
noted the sales proceeds had been distributed to shareholders
rather than being used to acquire assets or income for use in
future business operations. See Texaco-Cities, 182 Ill. 2d at
273, 695 N.E.2d at 486, citing Laurel Pipe Line, 537 Pa. at 213-
14, 642 A.2d at 476-77. In contrast, the Illinois Supreme Court
found Texaco-Cities remained in the pipeline-transportation
business and the sales proceeds were invested back into the
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business rather than being disbursed to shareholders. Texaco-
Cities, 182 Ill. 2d at 273, 695 N.E.2d at 486-87. Further, and
contrary to cases relied on by Texaco-Cities, the court found the
evidence before it did not indicate the sale amounted to a
cessation of a separate and distinct portion of Texaco-Cities'
business. Texaco-Cities, 182 Ill. 2d at 274, 695 N.E.2d at 487.
Thus, the court implied that, had there been evidence that the
sale was a cessation of business operations, the result of the
case would have been different and quite likely in line with
Laurel Pipe Line. See American States, 352 Ill. App. 3d at 530,
816 N.E.2d at 666 (the Department was unable to answer why the
supreme court distinguished Laurel Pipe Line rather than simply
rejecting it as unpersuasive); Blessing/White, 329 Ill. App. 3d
at 725, 768 N.E.2d at 341 (supreme court's treatment of the
decision in Laurel Pipe Line "suggests the functional test
assumes a different application in cases where the taxpayer's
disposition of assets amounts to a corporate liquidation in
cessation of business").
The interpretation of the supreme court's plain lan-
guage is unmistakable, and any arguments by defendants as to the
continued validity of the business-liquidation exception, con-
sidering the change in the statute and the case law of foreign
jurisdictions, are better directed to the supreme court. See
Robbins v. Allstate Insurance Co., 362 Ill. App. 3d 540, 545, 841
N.E.2d 22, 27 (2005). As we find the First District's authority
on this matter persuasive, we agree a gain from the liquidation
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and cessation of business operations--or a distinct and separate
portion thereof--constitutes nonbusiness income under the busi-
ness-liquidation exception to the functional test.
C. Business-Liquidation Income
Defendants argue that even if the business-liquidation
exception to the functional test for business income was valid,
it would not apply here because the proceeds were reinvested in
Loblaw's ongoing business. National Holdings argues the sale of
National Tea's and Super Market's assets were in liquidation of
their retail grocery business.
In deciding whether the gain from the sale of property
was business or nonbusiness income, the First District looks at
whether (1) the sale was in liquidation of the taxpayer's busi-
ness and (2) the proceeds were disbursed to the shareholders.
Shakkour, slip op. at 10, Ill. App. 3d at , N.E.2d at
; American States, 352 Ill. App. 3d at 531-32, 816 N.E.2d at
667-68; Blessing/White, 329 Ill. App. 3d at 728, 768 N.E.2d at
343. We adopt and apply the First District's approach to our
facts here.
In June 1995, National Tea and Super Markets entered
into an asset-purchase agreement with Schnuck Markets and there-
after ceased to operate their retail grocery business. Super
Markets distributed all of its assets to National Tea. National
Tea's board of directors passed a resolution in which the liqui-
dating sale proceeds were declared as a dividend and paid to
National Holdings. National Holdings owned 100% of the capital
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stock of Super Markets and National Tea. In November 1995,
National Holdings contributed the proceeds to Glendel as its only
asset. The proceeds were invested in interest-bearing debt
securities and were never used in conducting a business in the
United States. In June 2000, Glendel and National Holdings were
liquidated, and the proceeds were contributed to Glen Huron Bank,
organized and domiciled in Barbados. Accordingly, we find the
proceeds of the liquidation were not reinvested in the ongoing
retail grocery business of the taxpayer, and the trial court
correctly applied the liquidation exception to the functional
test.
III. CONCLUSION
For the reasons stated, we affirm the trial court's
judgment.
Affirmed.
KNECHT and COOK, JJ., concur.
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