An otherwise ordinary ad valorem property tax case turned interesting when a taxpayer requested that the Tennessee Court of Appeals “pierce the corporate veil.” Alcoa, Inc. v. Tenn. State Bd. of Equalization, No. E2010-00001-COA-R3-CV (Tenn. Ct. App. Feb. 18, 2011). The case arose out of an ad valorem property tax assessment against Alcoa for the alumina, coke, pitch, and fluoride it used to manufacture aluminum sheets. Alcoa disputed the assessment on the grounds that these raw materials were exempt from taxation. One of the exemptions Alcoa relied upon applies to “articles manufactured from the produce of th[e] state . . . in the hands of the manufacturer.” Alcoa claimed that the raw materials plus all scrap metal, potlining, and alloying metals used to create aluminum constituted exempt manufactured articles, but its claim was belied by a single stipulated fact in the case—Alcoa manufactures aluminum, but not the inputs that were manufactured by a subsidiary. The materials at issue were not manufactured in the “hands of the manufacturer” and did not qualify for the exemption.

Alcoa argued that the court should pierce the corporate veil and ignore the subsidiary’s separate existence. Under that theory, Alcoa would be deemed the manufacturer and thus would be entitled to the property tax exemption. Alcoa argued that its subsidiary had no substance—no employees or payroll, and business decisions were made by Alcoa employees who were paid by Alcoa and who received Alcoa benefits. The court rejected this argument and held that the taxpayer cannot simply disclaim its chosen structure whenever the legal implications prove undesirable.