Supreme Court Overturns Department of Taxes; Finds Mount Mansfield Company and AIG are Not Unitary Businesses

In AIG Insurance Management Services, Inc. v. Vermont Department of Taxes, 2015 VT 137 (November 20, 2015), the Vermont Supreme Court affirmed the trial court’s decision that Mount Mansfield Company, Inc. and AIG Insurance Management Services, Inc. (“AIG”) were not unitary businesses, overturning an earlier decision of the Commissioner of the Department of Taxes. Therefore, Mount Mansfield Company, Inc. was not required to pay an apportioned amount of Vermont state income tax based on income generated by AIG.

Issue: Mount Mansfield Company, Inc. (“MMC”) owns and operates Stowe Mountain Resort. MMC is wholly owned by AIG. AIG, in turn, is one of the largest insurance companies in the world and owns approximately 700 subsidiary corporations worldwide. The question before the Court was whether AIG and MMC were considered to have “unitary” business operations such that MMC would be required to pay income tax based upon a portion of AIG’s earnings within and outside of Vermont. The Vermont Department of Taxes found that MMC and AIG were unitary businesses. AIG appealed.

Holding: The Court affirmed the trial court’s decision that MMC was not a part of AIG’s unitary operations, and that MMC’s operation of a discrete business, a ski resort, was unrelated to AIG’s insurance and financial services business. In doing so, the Court considered that there were no economies of scale to be realized between AIG and MCC because of the lack of continuity between each company’s primary business function, that there was no centralized management, and that there was no functional integration or pooling of resources between AIG and MCC. Therefore, the Court agreed with AIG’s position that MCC is more akin to a passive investment than it is a part of AIG’s unitary group for tax-reporting purposes.

Because it was not required in order to reach its decision, the Court declined to rule on a companion issue raised by AIG as to whether the amendment of an income tax return extends the three year statute of limitations for levying a tax assessment.