State loses decision in tax dispute

WASHINGTON -- The Supreme Court dealt a setback Tuesday to the state of Illinois in a tax dispute over the $1.5 billion sale of data retrieval service Lexis/Nexis.

In a unanimous decision, the court said Illinois courts must reassess the grounds on which they ruled that the state could tax Ohio-based Mead Corp., a paper and forest products company, for the sale of Lexis/Nexis in 1994.

Mead, now MeadWestvaco, argued that the gain of over $1 billion could be taxed by Ohio, where the company is headquartered, but could not be taxed by Illinois.

Illinois courts disagreed, saying the state was entitled to a fraction of the $1 billion gain.

An Illinois trial court found that Mead's sale of Lexis/Nexis was a liquidation of property essential to Mead's regular trade or operations, enabling the state to tax a portion of the gain. The Appellate Court of Illinois upheld the lower court.

Writing for the court, Justice Samuel Alito said that the state court's analysis of the tax dispute was flawed and that the justices are returning the case to the Appellate Court of Illinois for further consideration.

Alito said the state courts misinterpreted two previous Supreme Court rulings in deciding that Illinois was entitled to tax part of the gain.