1
STATE OF MINNESOTA

IN SUPREME COURT

A20-0021

Tax Court Gildea, C.J.
Took no part, Moore, J.
YAM Special Holdings, Inc.,

Relator,

vs. Filed: August 12, 2020
Office of Appellate Courts
Commissioner of Revenue,

Respondent.
________________________

Susan J. Markey, Barry A. Gersick, Maslon LLP, Minneapolis, Minnesota; and

Andrew T. Bernknopf, De Castro, West, C hodorow, Mendler & Glickfeld, Inc., Los
Angeles, California, for relator.

Keith Ellison, Attorney Gene ral, Kristine K. Nogosek, John M. O’Mahoney, Assistant
Attorneys General, Saint Paul, Minnesota, for respondent.
________________________

S Y L L A B U S
Imposing Minnesota tax on an apportioned share of the in come from the sale of a
partial interest in a member of a unitary business does not violate the Due Process Clauses
of the United States and Mi nnesota Constitutions because the income from the sale is
business income of a unitary business and that unitary business has a sufficient connection
to Minnesota to satisfy due process principles.
Affirmed.

2
O P I N I O N
GILDEA, Chief Justice.
The question presented in this case is whether the income from the sale of a partial
interest in a business is subject to Minnesota corporate income tax. Relator YAM Special
Holdings, Inc. sold a majority interest in its Go Daddy business and reported the gain from
the sale as income that was not subject to Minnesota tax. The Commissioner of Revenue
disagreed and assessed tax on an apportioned share of the income. YAM appealed. The
tax court determined that Minnesota could tax an apportioned share of the income from the
sale as unitary business income. YAM Special Holdings, Inc. v. Comm’r of Revenue, No.
9122-R, 2019 WL 6213168, at *8 (Minn. T.C. Nov. 12, 2019). Because we conclude that
the gain from the sale is business income of a unitary business, we affirm.
FACTS
The facts are undisputed. YAM is an Ariz ona “S” corporation. Its principal place
of business and commercial domicile is in Sc ottsdale, Arizona. Until the transaction at
issue in this case, YAM’s founder, Robert Parsons, was its sole shareholder. At all relevant
times, YAM operated an internet-based business called Go Daddy, which provides internet
domain names, website hosting, and related services to its customers. Customers accessed
Go Daddy’s business through its website—hosted by comput er servers in Arizona—and
through phone calls to its service facilities, which were located outside of Minnesota. Go

3
Daddy operated its business through 12 tax-di sregarded wholly-owned U.S. subsidiaries
and 9 foreign tax-disregarded subsidiaries.1
At all relevant times, YAM did not own r eal or tangible personal property in
Minnesota nor did it employ any person base d in Minnesota. YAM did not have any
interest in any business entities or assets that were physically located in Minnesota. But
about 1 percent of YAM’s revenue came from transactions with Mi nnesota customers.
Based on its Minnesota revenue, YAM report ed Minnesota taxable income in 2010 of
$56,829 and paid Minnesota $4,461 in taxes on that income.
On July 1, 2011, Go Daddy announced in a press release that “it ha[d] signed a
definitive agreement to receive a strategic i nvestment and enter into a partnership with
[certain investors].” The chief executive o fficer of Go Daddy expl ained that Go Daddy
was “partnering with [the investors] beca use of their technology expertise, their
understanding of Web based businesses and because their values align with [Go Daddy’s].”
The chief executive officer and the investors believed that the partnership would “take the
company to the next level, especially when it comes to accelerating international growth.”
One of the investors echoed these remarks, stating that “there is significant opportunity to
expand the current portfolio of products a nd services as well as accelerate growth
internationally.”

1 If a business entity is disregarded, “its ac tivities are treated in the same manner as a
sole proprietorship, branch, or division of the owner.” Treas. Reg. § 301.7701-2(a) (2019).
In other words, YAM treated the income of the operating subsidiaries as the income of
YAM itself. See Ashland Inc. v. Comm’r of Revenue , 899 N.W.2d 812, 814–15 (Minn.
2017).

4
YAM took several steps in anticipation of this transaction. Using its own funds,
YAM paid all of its bank debt, about $51 million. YAM then formed two limited liability
companies—Desert Newco, LLC and Go Daddy Operating Company LLC—as
wholly-owned subsidiaries, a nd converted the 12 domestic subsidiaries into 12 wholly-
owned limited liability companies. YAM cont ributed the 12 subsidiaries and its sole
interest in Go Daddy Opera ting Company to Desert Newco. YAM also transferred its
remaining liabilities to Go Dadd y Operating Company. As a result of these steps, YAM
became the sole owner of Desert Newco, De sert Newco became the sole owner of Go
Daddy Operating Company, and Go Daddy Operating Company became the sole owner of
the 12 subsidiaries, which were the active operating entities for the Go Daddy business.
On December 16, 2011, the investors paid YAM roughly $899.5 million for
71.39 percent of the membership interest units in Desert Newco. That same day, Go Daddy
Operating Company borrowed $750 million from bank lenders. The funds were used (1) to
pay for the investors’ transaction expenses ($46 million); (2) to pay for YAM’s transaction
expenses ($21.5 million); (3) “to buy out restricted stock units and stock options in” YAM
($368 million); (4) to provide “adequate working capital” for Go Daddy Operating
Company and the 12 operating subsidiaries ($31.8 million); and (5) to pay a portion of the
purchase price of the Desert Newco member ship units ($279.8 million). Also on
December 16, certain employee options in YAM were converted to options in Desert
Newco, and Go Daddy Operating Company i ssued a $300 million pr omissory note to
YAM.

5
As a result of the sale, YAM maintained a 28.61 percent membership interest and
the investors maintained a 71.3 9 percent interest in Desert Newco. YAM distributed the
net cash proceeds of the sale—$1.168 billion—to its sole shareholder, Parsons.
After the sale, an executive committee ma naged Desert Newco and the board of
directors provided oversight. The committee consisted of three managers, two appointed
by the investors and one appointed by YAM. The board included five investor members,
one YAM member, the chief executive officer of Desert Newco, and an independent board
member.
On YAM’s 2011 federal income tax return , YAM treated the transaction as a sale
of a share of the assets that comprised the Go Daddy business. Doing so resulted in a long-
term capital gain of abou t $1.353 billion, offset by a long-term capital loss of
$1.664 million. On its 2011 Minnesota income tax return, YAM treated the gain from the
sale as income that was not subject to Minnesota tax; YAM also apportioned 1.0471
percent of its ordinary business loss to Minnesota.
The Commissioner determined that the gain on the sale was apportionable business
income and assessed additional Minnesota income tax for 2011—approximately $1.247
million—on a portion of that ga in, plus penalties and interest. 2 YAM appealed the
Commissioner’s assessment administrativel y, and the Commissioner affirmed the
assessment.

2 The Commissioner also assessed additional income tax, and interest and penalties,
based on YAM’s 2009 and 2010 tax filings, but those assessments are not at issue in this
appeal.

6
YAM then appealed the Commissioner’s determination to the tax court, and YAM
and the Commissioner each moved for summary judgment. YAM, 2019 WL 6213168, at
*1. The tax court concluded that the income from the sale was business income subject to
Minnesota tax. Id. at *8. Accordingly, the tax c ourt granted the Commissioner’s motion
for summary judgment and denied YAM’s motion for summary judgment. Id. YAM
appeals and argues that the income from the sale is nonbusiness income that is not subject
to Minnesota income tax.
ANALYSIS
This case comes to us from a final order of the tax court. Our court “review[s] the
tax court’s conclusions of law and interpretation of statutes de novo . . . and its findings of
fact for clear error.” Antonello v. Comm’r of Revenue , 884 N.W.2d 640, 643–44 (Minn.
2016) (citations omitted). We presume that the Commissioner’s tax assessments are “valid
and correctly determined.” F-D Oil Co. v. Comm’r of Revenue , 560 N.W.2d 701, 704
(Minn. 1997). The taxpayer bears “the burde n of demonstrating the incorrectness or
invalidity” of the assessments. Id.
YAM argues that Minnesota cannot tax th e income from the sale because that
income is nonbusiness income. YAM’s argument is based on two theories. YAM’s first
theory is that Minnesota does not have a suffi cient connection with the sale and thus due
process principles prevent Minnesota from ap portioning the income for tax purposes.
YAM’s second theory is that the income from the sale is income derived from a capital
transaction that solely serves an investment function and therefore it is nonbusiness income
not subject to apportionment under Minn. Stat. § 290.17, subd. 6 (2018).

7
A.
Before turning to YAM’s first theory—that due process principles prevent
Minnesota from taxing the inco me from the sale through ap portionment—we review the
relationship between Minnesota corporate tax law and due process requirements. Under
the Due Process Clause of the U.S. Constitution, a state may not impose an income tax on
“value earned outside its borders.”3 Container Corp. of Am. v. Franchise Tax Bd., 463 U.S.
159, 164 (1983) (citation omitted) (internal quot ation marks omitted). In the case of a
business operating in more than one state, ho wever, determining the “precise territorial
allocations of ‘value’ is often an elusive goal.” Id. As a result, Minnesota has adopted the
unitary business principle and apportionment approach to determine the portion of the
income that is subject to tax. See Minn. Stat. § 290.17, subds. 3–4 (2018); Minn. Stat.
§ 290.191, subd. 1(a) (2018); see also Container Corp. , 463 U.S. at 165 (discussing the
unitary business principle and apportionment approach).
Minnesota law defines a unitary business as “business activities or operations which
result in a flow of value between them.” Mi nn. Stat. § 290.17, subd. 4(b). When a trade
or business is conducted partly within and pa rtly outside of Minnesota, and that trade or
business is part of a unitary business, “the entire income of the unitary business is subject
to apportionment pursuant to section 290.191.” Id., subd. 4(a). Once the State determines

3 Both the United States and Minnesota C onstitutions provide that no person shall be
deprived of life, liberty, or property without due process of law. U.S. Const. amend. XIV,
§ 1; Minn. Const. art. I, § 7. We have recognized that “[t]he due process protection
provided under the Minnesota Constitution is identical to the due process guaranteed under
the Constitution of the United States.” Sartori v. Harnischfeger Corp., 432 N.W.2d 448,
453 (Minn. 1988).

8
that the trade or business is part of a unitary business, it a pplies an apportionment
formula—based on a percentage of the business’s Minnesota sales, property, and payroll—
to determine the amount of business income subject to tax, Minn. Stat. § 290.191,
subd. 2(a) (2018). Under Minnesota law, “[a]ll income of a trade or business is subject to
apportionment except nonbusiness income.” Minn. Stat. § 290.17, subd. 3.
The U.S. Supreme Court has upheld the unitary business principle and
apportionment approach as constitutional, “subject to certain constraints.” Container
Corp., 463 U.S. at 165. Under the Due Process Clause, a state may not apportion income
arising out of interstate activitie s unless two requirements are met. 463 U.S. at 165–66.
First, “a ‘minimal connection’ or ‘nexus’ ” must exist “between the interstate activities and
the taxing State.” Id. (citation omitted). Second, there must be “a rational relationship
between the income attributed to the State and the intrastate values of the enterprise.”
Mobil Oil Corp. v. Comm’r of Taxes, 445 U.S. 425, 437 (1980).4
These principles, the Court has explained, require that (1) the unitary business
conducts some business in the taxing state, (2) the unitary business’s out-of-state activities
are “related in some concrete way to the in-state activities,” and (3) the unitary business is
united by “some bond of ow nership or control.” Container Corp. , 463 U.S. at 166.
Accordingly, the sharing or exchanging of value between the in-state and out-of-state

4 The Due Process Clause also requires th at a taxing state have a connection to the
taxpayer. See Allied-Signal, Inc. v. Director , 504 U.S. 768, 778 (1992). But YAM does
not argue that Minnesota does not have a co nnection to its business. Indeed, in 2011,
Minnesota taxed the income that Go Daddy generated from sales to Minnesota customers,
and YAM does not challenge that assessment.

9
activities must be more than “the mere flow of funds arising out of a passive investment or
a distinct business operation.” Id.; see also Allied-Signal, Inc. v. Director, 504 U.S. 768,
787 (1992) (“[T]he capital transaction [mus t] serve an operational rather than an
investment function.”). The Minnesota Legi slature has codified these requirements. See
Minn. Stat. § 290.17, subd. 4(a) (“If a trade or business conducted . . . partly within and
partly without this state is part of a unitary business , the entire income of the unitary
business is subject to apportionment pursuant to section 290.191.” (emphasis added)); id.,
subd. 6 (“Nonbusiness income . . . include s income that cannot constitutionally be
apportioned to this state because it is derived from a capital transaction that solely serves
an investment function.” (emphasis added)).
With this background in mind, we turn to YAM’s argument that taxing the income
from the sale as business income violates due process principles.
B.
YAM’s first theory is that Minnesota does not have a sufficient connection with the
income it seeks to tax. As a result, YAM asserts, due process principles prevent Minnesota
from apportioning the income to th e State in order to tax it. See Minn. Stat. § 290.17,
subd. 6 (“Nonbusiness income is income of the trade or business that cannot be apportioned
by this state because of the Un ited States Constitution or th e Constitution of the state of
Minnesota . . . .”).
In response, the Commissioner argues that Minnesota has a su fficient connection
with the 2011 sale income because the ga in from the sale was generated by a unitary
business that receives significant revenues from Minnesota customers. Imposing a tax on

10
an apportioned share of the income from the transaction, the Commissioner maintains, is
consistent with due process requirements. We agree with the Commissioner.
As discussed above, the Due Process Clause requires the taxing state to have a
minimum connection with the taxpayer’s inters tate activities and a rational relationship
with the intrastate value of the taxpayer’s business. Container Corp., 463 U.S. at 165–66.
Put differently, a state must have a connection w ith the activity it seeks to tax, even if it
has a minimum connection to the taxpayer generally. When a taxpayer realizes a gain from
the sale of an asset, “the re levant unitary business inquiry” is “one which focuses on the
objective characteristics of the asset’s use and its relation to the taxpayer and its activities
within the taxing State.” Allied-Signal, 504 U.S. at 784–85.
YAM concedes that YAM and the operating subsidiaries formed a unitary business
at the time of the sale. And the undisputed facts show that the operating subsidiaries—the
asset—had a sufficient connection to Minnesota. YAM conducted the Go Daddy business
through the operating subsidiaries, and Go Daddy received approximately 1 percent of its
revenue from transactions with Minnesota customers. YAM paid Minnesota income taxes
on this revenue. YAM then sold a partial inte rest in the 12 operating subsidiaries, which
generated the income that Minnesota seeks to tax. The value of the operating subsidiaries
was based, in part, on the success of YAM’ s business operations, which includes YAM’s
revenue generated from Minnesota sales. Acco rdingly, the tax court correctly concluded
that the income generated from the sale of the partial interest in the operating subsidiaries
was business income subject to apportionment. YAM, 2019 WL 6213168, at *8.

11
The Supreme Court’s analysis in Allied-Signal supports our conclusion. There, the
Court considered whether New Jersey c ould tax the income generated from Bendix
Corporation’s sale of a stock interest in ASARCO Inc. 5 Allied-Signal, 504 U.S. at 773.
Bendix was a Delaware corporation that was domiciled and headquartered in Michigan but
conducted business in all 50 states. Id. ASARCO was a New Jersey corporation that had
its principal place of business in New York. Id. at 774. Bendix purchased 20.6 percent of
ASARCO’s stock through the open market. Id. It then sold the stock back to ASARCO,
resulting in a gain of $211.5 million. Id. New Jersey sought to tax an apportioned sum of
this income. Id.
The Court explained that New Jersey coul d tax an apportioned sum of the income
under the unitary business principle if “the obj ective characteristics of the asset’s use and
its relation to the taxpayer and its activities within the State” showed that the asset and the
taxpayer formed a unitary business. Id. at 785. But the Court concluded that Bendix and
ASARCO were not a unitary business because they were not functionally integrated or
centrally managed, nor did they have economies of scale. Id. at 788. The Court held that
the unitary business principle therefore did not apply. Id. at 788–79. Because New Jersey
did not have a minimum connection with the sale, nor a rational relationship with the value
it sought to tax, the income from the sale was not taxable as business income. See id. at
788–90.

5 Allied-Signal was the successor-in-in terest to Bendix Corporation. Allied-Signal,
504 U.S. at 773.

12
In this case, the parties agree that YAM and the operating subsidiaries formed a
unitary business. The sale of a partial inte rest in the operating subsidiaries generated
income for the unitary bus iness, which is subject to Minnesota tax. See Minn. Stat.
§ 290.17, subd. 4 (“If a trade or business conduc ted . . . partly within and partly without
this state is part of a unitary business, the entire income of the unitary business is subject
to apportionment pursuant to section 290.191.”). Minnesota may therefore impose a tax
on an apportioned share of the gain from the 2011 transaction.6
In urging us to reach the opposite conclusion, YAM asserts that the unitary business
principle applies only when one of the entities that forms part of th e unitary business is
physically located in the state that seeks to tax the business income of the unitary business.
YAM cites Allied-Signal, 504 U.S. 768, Container Corp. , 463 U.S. 159, and
MeadWestvaco Corp. v. Illinois Department of Revenue, 553 U.S. 16 (2008), to support its
argument that a member of the unitary business must be phys ically located in the taxing
state. We are not persuaded.
The cases YAM relies on do not stand for the proposition that a member of the
unitary business must be physica lly present in the taxing stat e. YAM is correct that in

6 YAM also relies on general principles rela ting to judicial jurisdiction set forth in
International Shoe Co. v. Washington, 326 U.S. 310 (1945), to argue that Minnesota does
not have a sufficient connection with the 2011 transaction. But the Court has applied these
principles in the tax context to conclude that taxing the income that is “reasonably
attributable” to the business within the state is consistent with due process principles. E.g.,
Moorman Mfg. Co. v. Bair , 437 U.S. 267, 269–75 (1978). And as we have explained, a
portion of the income from the sale is reas onably attributable to Go Daddy’s business
within Minnesota. Notably, an apportioned share of the ga in from the transaction is
approximately 1 percent, which is comparable to the percentage of YAM’s 2011 revenue
from transactions with Minnesota customers.

13
Allied-Signal, New Jersey sought to tax the income generated from the sale of ASARCO—
an entity headquartered in New Jersey. 504 U.S. at 788. But the Court’s conclusion that
Bendix and ASARCO did not fo rm a unitary business was base d on a lack of integration
and centralized management. Id. The Court did not address whether the unitary business
principle applies when no member of the unitary business operates in the taxing state.
The Court similarly did not address the issue in Container or MeadWestvaco. In
Container, the Court concluded that a corporation and its overseas subsidiaries formed a
unitary business based on a nu mber of factors, including the supervisory role the
corporation played, but did not consider the corporation’s location.7 463 U.S. at 179. And
in MeadWestvaco, the Court expressed no opinion as to whether the corporation or its asset
formed a unitary business. 553 U.S. at 30. Because the cases YAM relies on do not support
its argument that the unitary business principle applies only when a member of the unitary
business is physically present in the taxing state, that argument fails.
YAM also relies on cases concerning tax-payi ng trusts in which our court, and the
Supreme Court, concluded that the trusts did not have sufficient cont acts with the taxing
state and were therefore not subject to tax. In North Carolina Department of Revenue v.
Kimberley Rice Kaestner 1992 Family Trust, the Supreme Court held that the presence of
in-state beneficiaries, on its own, does not establish sufficient contacts with the state. 588
U.S. ___, 139 S. Ct. 2213, 2220–21 (2019) (explaining that the trust made no distributions

7 In Amoco Corp. v. Commissioner of Revenue , we declined to apply the factors set
forth in Container for determining whether the taxpayer was engaged in a unitary business.
658 N.W.2d 859, 870 (Minn. 2003) (“[W]e ca nnot ascertain a valid reason to apply a
standard different from that articulated by the legislature.”).

14
to any North Carolina resident, the trust was ad ministered in different states, the trustee
made no investments in North Carolina, and the settlor did not reside in North Carolina).
And in Fielding v. Commissioner of Revenue , we determined that sufficient contacts did
not exist because the trusts received their income from assets outs ide of Minnesota and
because the trustees had almost no contact with the State. 916 N.W.2d 323, 333–34 (Minn.
2018).
These cases are inapposite. As the Commissioner notes, the Kaestner Court
expressly limited its holding “to the specific facts presented” and those facts did not include
a business that received approxi mately 1 percent of its reve nues from transactions with
residents of the taxing state. 588 U.S. at ___, 139 S. Ct. at 2221. And in Fielding, we
explained that “[t]he State cannot fairly ask th e Trusts to pay taxes as residents in return
for the existence of Minnesot a law and the physical storage of trust documents in
Minnesota.” 916 N.W.2d at 334. In this case, Minnesota seeks to tax YAM, not as a
resident trust, but as an entity that conducts its business partially within the State, and by
imposing tax on only an apportioned share of the income from th e 2011 sale. YAM’s
reliance on these trust cases is therefore misplaced.
Based on our analysis, we conclude that taxing an apportioned share of the income
from the 2011 sale does not violate the Due Process Clauses of the United States and
Minnesota Constitutions because it is business income of a unitary business and the unitary
business has a sufficient connection to Minnesota to satisfy due process principles.

15
C.
YAM’s second theory is that the income from the 2011 sale is income “derived from
a capital transaction that sole ly serves an investment f unction,” Minn. Stat. § 290.17,
subd. 6, because, in YAM’s vi ew, the sale served no oper ational function and occurred
outside of the ordinary course of business. According to YAM, the entire purpose of the
sale was for YAM’s “sole shareholder, and a few key employees, to sell their interests and
profit from their investment.” YAM maintains that it incurred substantial new debt and a
net reduction of $6.7 million in working capital for the Go Daddy business and that the
proceeds from the sale were not reinvested in regular business operations. YAM argues
that the income is therefore nonbusiness income under Minn. Stat. § 290.17, subd. 6. And
if the income from the sale is nonbusiness income, YAM asserts, Minnesota cannot apply
the apportionment formula to ta x the income from the sale. See Minn. Stat. § 290.17,
subd. 3.
In response, the Commissioner asserts that the example of nonbusiness income in
Minn. Stat. § 290.17, subd. 6, does not estab lish a separate test fo r nonbusiness income.
Rather, the Commissioner argues, the statut e codifies the standard set forth in Allied-
Signal, 504 U.S. 768, “for determining whether income from a capital transaction meets
constitutional requirements.” In the altern ative, the Commissioner argues that YAM has
failed to carry its burden to show that the income from the transaction served an investment
function.

16
Section 290.17, subdivision 6, in relevant part, provides:
Nonbusiness income is income of th e trade or business that cannot be
apportioned by this state because of the United States Constitution or the
Constitution of the state of Minnesota and includes income that cannot
constitutionally be apportioned to this state because it is derived from a
capital transaction that solely serves an investment function.
(Emphasis added.)
We agree with the Commissione r that subdivision 6 codifies the standard set forth
in Allied-Signal, which we adopted in Hercules Inc. v. Commissioner of Revenue ,
575 N.W.2d 111 (Minn. 1998). In Allied-Signal, the Court explained that, when a payee
corporation receives an investment from a pa yor corporation, “the payee and the payor
need not be engaged in the same unitary business as a prerequisite to apportionment in all
cases.” 504 U.S. at 787. Although “the existence of a unitary relation between the payor
and the payee is one means of meeting the constitutional requirement,” it is not the only
means. Id. If “the capital transaction serve[s] an operational rather than an investment
function,” a state may apply an apportionm ent formula to tax the transaction. Id. (“[F]or
example, a State may includ e within the apportionable income of a nondomiciliary
corporation the interest earned on short-term deposits in a bank located in another State if
that income forms part of the working capital of the co rporation’s unitary business,
notwithstanding the absence of a unitary relationship between the corporation and the
bank.”). The Court later clarified that the question of whether an asset serves an operational
function is part of the inquir y in determining whether the asset was a unitary part of the
business being conducted in the taxing state. MeadWestvaco Corp., 553 U.S. at 29.

17
In Hercules, we adopted the standard set forth in Allied-Signal. Hercules,
575 N.W.2d at 116. In that case, we consid ered whether the gain Hercules realized from
the sale of its stock in Himont—a corporation it had helped to create a few years earlier—
was apportionable to Minnesota. Id. at 112–13. At the time of Hercules, section 290.17,
subdivision 6, provided:
For a trade or business for which allo cation of income w ithin and without
this state is required, if the taxpayer has any income not connected with the
trade or business carried on partly within and partly withou t this state that
income must be allocated under s ubdivision 2. Intangible property is
employed in a trade or business if the owner of the property holds it as a
means of furthering the trade or business.

Minn. Stat. § 290.17, subd. 6 (1996). Applying this provision, we concluded that the sale
of the stock was nonbusiness income a nd not apportionable to Minnesota. Hercules,
575 N.W.2d at 115–16. We explained that Hercules had “carried the Himont stock on its
books for more than four years as an investment, not as an asset,” and that it had sold the
stock in direct response to a hostile takeover threat. Id. at 115. Unlike other cases in which
the gain generated from the sale of an intangible asset was used to pay operating expenses,
Hercules did not need the proceeds as operating funds. Id. Accordingly, we held that the
gain was nonbusiness income. Id. at 116.
Even if we had determined that the ga in was business income, we explained that
due process principles prevented Minnesota fro m taxing the gain through apportionment.
Id. Those principles require a showing that e ither “the taxpayer and the corporation that
was the source of the income have a un itary business relationship, or that the intangible
asset served ‘an operational rather th an an investment function .’ ” Id. (quoting Allied-

18
Signal, 504 U.S. at 787 (emphasi s added)). Because Hercules and Himont were not a
unitary business, and because Hercules treated the stock as an investment rather than as a
repository for working capital, we concluded that apportioning the income from the sale
would violate the Due Process Clause of the U.S. Constitution. 575 N.W.2d at 116–17.
One year after our decision in Hercules, the Minnesota Legislature amended section
290.17, subdivision 6, to its current form. Act of May 25, 1999, ch. 243, art. 2, § 23, 1999
Minn. Laws 2054, 2078 (codified as Minn. Stat. § 290.17, subd. 6 (2018)). Subdivision 6
now provides that income of a trade or business cannot be apportioned if “it is derived from
a capital transaction that solely serves an investment func tion.” Minn. Stat. § 290.17,
subd. 6. This provision codi fies what we explained in Hercules: If a taxpayer and the
corporation that was the source of the income do not have a unitary business relationship,
and if the income from the sale serves an investment function, rather than an operational
function, Minnesota cannot apportion the income. 575 N.W.2d at 116.
As explained above, this provision does not apply to YAM and its operating
subsidiaries because YAM conced es that they form a unitary business. And because the
income generated from the transaction is bus iness income of that unitary business,
Minnesota may tax that income through apportionment. Minn. Stat. § 290.17, subd. 4(a).8

8 YAM also argues that if we conclude th at the income from the sale is nonbusiness
income, the income is not subject to Minnesota tax. Under Minn. Stat. § 290.17, subd. 2(c)
(2018), Minnesota may tax certain types of n onbusiness income “to the extent that the
income from the business in the year preced ing the year of sale was allocable to
Minnesota.” Because we hold that the income from the sale is business income, we do not
reach this argument.

19
CONCLUSION
For the foregoing reasons, we affi rm the decision of the tax court.
Affirmed.

MOORE, J., not having been a member of this court at the time of submission, took
no part in the consideration or decision of this case.