HALLIBURTON OIL WELL CO. v. REILY

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Argument of Mr. Chief Justice Warren

Mr. Chief Justice Warren: Number 264, Halliburton Oil Cementing Company versus James S. Reily, Collector of Revenue, State of Louisiana.

Mr. Taylor.

Argument of Benjamin B. Taylor, Jr.

Mr. Benjamin B. Taylor, Jr.: Mr. Chief Justice, members of the Court.

This case presents an important point of constitutional law upon a brief statement of facts which had been stipulated.

This is a suit for refund of tax monies paid under protest to the State of Louisiana.

The case arises in the field of state taxation of interstate commerce and the governing principle of law under the Constitution of the United States is that the Constitution of the United States, the Interstate Commerce Clause forbids tax discrimination by the states for the forthright or ingenious.

That the Equal Protection of the law’s Clause, that the Due Process Clause forbids arbitrary tax discrimination by the states even where there is no element of interstate commerce.

The classification for tax purposes may not be probably arbitrary.

Now, the Louisiana Collector of Revenue, as we see it, takes the position that Louisiana may levy an excise tax upon the privilege of engaging in interstate commerce.

The Louisiana Supreme Court has upheld the Collector of Revenue and as we view that decision has held that Louisiana may discriminate against the multistate or interstate business that Louisiana may thus give a direct commercial advantage to local business.

Halliburton Oil Well Cementing Company of Duncan, Oklahoma, appellant taxpayer, has appealed from this decision of the Louisiana Supreme Court on the ground that it is repugnant to the Constitution of the United States and particularly to the Interstate Commerce Clause, the Equal Protection of the laws Clause and the Due Process Clause.

This Court has noted probable jurisdiction.

The tax in question is the Louisiana use tax which as a part of the Louisiana sales and use tax law.

The tax rate is 2%.

In the case of the sales tax, the intrastate tax, the rate is 2% of the sales tax -- of the sales price to the purchaser.

In the case of the use tax, the rate is 2% of the cost price to the purchaser who imports the goods, that is the purchaser who has purchased the goods outside of the State of Louisiana and brought them into the state for his own use.

Halliburton's complaint is not of the 2% tax rate which is the same in both taxes.

Halliburton's complaint is of discrimination in the choice of tax basis to which the 2% rate is applied.

Justice John M. Harlan: Does the use tax apply only to one who has purchased outside of Louisiana?

Mr. Benjamin B. Taylor, Jr.: That is correct Your Honor, then brings it into the state --

Justice John M. Harlan: And then brings it into the state --

Mr. Benjamin B. Taylor, Jr.: -- and uses it there.

Justice John M. Harlan: And uses it there.

Justice William O. Douglas: That’s state comparable to the Hannaford.

Mr. Benjamin B. Taylor, Jr.: Of the Henneford case -- Henneford versus Silas Mason is the key case of which is cited, reported and relied upon by both sides.

Actually, that is the only case at issued here today.

Justice Felix Frankfurter: What are the terms of the statute defining the virtues upon whom a use tax could be levied?

Mr. Benjamin B. Taylor, Jr.: The use tax sir --

Justice Felix Frankfurter: I'm talking about the statute, the terms of the statute.

Mr. Benjamin B. Taylor, Jr.: If falls upon, “the first use --"

Justice Felix Frankfurter: What?

Mr. Benjamin B. Taylor, Jr.: "The first use within the statute” sir.

Justice Felix Frankfurter: First use of it.

Mr. Benjamin B. Taylor, Jr.: That’s correct sir.

Justice Felix Frankfurter: Does that mean that if I travel from Texas -- if I buy something in Texas, and by car, go into Louisiana, to Louisiana and then out of Louisiana, not a record under Louisiana and use something that I bought or opened the package that I bought in Texas just as a --

Mr. Benjamin B. Taylor, Jr.: No sir.

Justice Felix Frankfurter: -- fugitive passing there through?

Mr. Benjamin B. Taylor, Jr.: No, that should -- it would not go that far sir.

Justice Felix Frankfurter: Well, now what is the -- what are the terms of the statute?

How do I know whether it goes that far enough?

Mr. Benjamin B. Taylor, Jr.: Well, here’s what it says to Section 302.

Here is the sales tax --

Justice William O. Douglas: Where are you reading counsel?

Mr. Benjamin B. Taylor, Jr.: This is from page 80 of the larger yellow brief where we have quoted the statute as a supplement at page 8.

Section 302, at the top of the (a) there right at the middle of the page, fixes the sales tax upon the sale.

Now Section 302 (a) (2) almost at the bottom of page 80 has this language.

Here’s the fixing of the tax.

At the rate of 2% of the cost price of each item or article of tangible personal property, when the same is not sold but used, consumed, distributed or stored for use or consumption in the state.

Justice Felix Frankfurter: Therefore the -- the -- it must be all -- the use must be exhausted within the state, is that right?

There must be a used, consumed, distributed or stored to use or consumption in the state if I buy some food in Texas and then eat it in Louisiana, is there a use tax or not?

Mr. Benjamin B. Taylor, Jr.: There would -- that be solely sir because there’s exemption for food, but otherwise (Voice Overlap)

Justice Felix Frankfurter: (Inaudible)

Mr. Benjamin B. Taylor, Jr.: That would be a use tax sir.

Justice Felix Frankfurter: I put them on -- buying in Texas, I put them on in -- to Louisiana -- driving through Louisiana out of the state.

Mr. Benjamin B. Taylor, Jr.: That’s correct sir.

Justice Felix Frankfurter: There would be.

Mr. Benjamin B. Taylor, Jr.: There’s a using in the State of Louisiana.

The use tax, historically, the sales tax has preceded the use taxes and it was found that people would go outside the state for their major purchases, and so the use taxes were put in to cover that gap.

Justice Felix Frankfurter: Now suppose I buy that pair of shoes in Texas and there is a nice box and I keep it in the box -- that would not be in it because it isn't used, consumed, distributed or stored for use.

Mr. Benjamin B. Taylor, Jr.: It would be stored for use sir.

Justice Felix Frankfurter: It would be stored for use.

Mr. Benjamin B. Taylor, Jr.: That’s correct sir.

Justice Felix Frankfurter: So that will be subject to the use tax.

Mr. Benjamin B. Taylor, Jr.: That is correct.

Now we --

Justice Felix Frankfurter: And every -- bringing into the State of Louisiana, anything from without, even for the most fugitive persons in the state is subject to the use tax?

Mr. Benjamin B. Taylor, Jr.: That is correct sir.

Justice Felix Frankfurter: Alright, now I understand.

Mr. Benjamin B. Taylor, Jr.: Now, as this Court may judicially notice, the sales and use taxes have become important taxes, 37 American states levy such taxes and they account for 20% of the combined total tax take of all states.

An important question of constitutional law is presented today, substantial tax monies are at stake and seven interstate taxpayers have filed the briefs, amicus curiae, on the jurisdictional statement, among them Humble Oil and Refining Company, Chicago Bridge and Iron, Sperry Rand and American Can.

Let us focus now upon the heart of this controversy.

The Louisiana sales tax, as distinguished from the use tax, falls only upon intrastate sales.

The use tax on the other hand, falls only upon the use within the state, of goods acquired outside the state and then imported into the state and used within the state.

So the sales tax is an intrastate tax and the use tax is an interstate tax, the interstate counterpart of the intrastate sales tax.

In the Silas Mason case to which reference has been made --

Justice Felix Frankfurter: Now, before you go into cases --

Mr. Benjamin B. Taylor, Jr.: Yes sir.

Justice Felix Frankfurter: -- I would be greatly helped if you'd tell us exactly what are the controlling -- what are the real -- the actual detailed facts in this case so I wouldn't be considering a lot of abstract talk and decisions.

Mr. Benjamin B. Taylor, Jr.: Halliburton Oil Well Cementing Company is manufacturer which uses its own wet product.

An economist would classify it as a manufacturer-user or producer-consumer.

Halliburton is not engaged in buying or selling the equipment here in question so as to give rise to the sales tax.

Halliburton’s operation is this, Halliburton manufactures complex truck-borne scientific equipment, specialized oil well servicing equipment for cementing, logging, testing, surveying and perforated center for oil wells.

This equipment is produced and fabricated in Halliburton’s own production shops in Duncan, Oklahoma.

We have found it helpful to visualize this equipment and photographs of this equipment appear in the transcript of record, opposite page 16.

Halliburton conducts a multi-state operation, interstate operation partially within Louisiana and partially outside Louisiana.

Justice Felix Frankfurter: Now, all of this -- all of manufacturing is done in Oklahoma?

Mr. Benjamin B. Taylor, Jr.: That’s correct sir.

It conducts its operations in three steps.

First, the manufacturing in its own shops in Duncan, Oklahoma of this complex equipment, the next step is a transportation of this equipment in the channels of interstate commerce on interstate highways across state lines and the importation of this equipment into Louisiana.

The third step is the using of this product in Louisiana on the contract for the purpose of servicing oil wells.

Halliburton does not sell this equipment but uses it on the contract in Louisiana.

Justice John M. Harlan: Mr. Taylor, does it bill this equipment from the ground up itself or does it purchase something?

Mr. Benjamin B. Taylor, Jr.: It purchase certain major parts such as the chassis and major pieces of scientific equipment but it is of the -- it is of the essence of this case sir, that approximately two-thirds of the cost of this -- this finished equipment -- two-thirds of it was in labor and shop overhead.

That you have focused upon the key point on the case that one-third of the finished cost price was materials which we call cost element (Voice Overlap)

Justice William J. Brennan: The labor and shop overhead actually applied however in Oklahoma?

Mr. Benjamin B. Taylor, Jr.: In Oklahoma sir.

Justice William J. Brennan: In other words, what comes into Louisiana is this completed truck that we see here at page 16, is that it?

Mr. Benjamin B. Taylor, Jr.: Yes sir.

Justice William J. Brennan: But what you do is buy the components.

Mr. Benjamin B. Taylor, Jr.: That’s correct.

Justice William J. Brennan: And then you assemble them in Oklahoma.

Mr. Benjamin B. Taylor, Jr.: That’s correct sir.

Justice William J. Brennan: And the -- in figuring your cost, you include not or you rather -- you add to the cost of the tangible items, the labor and overhead that goes into the assembling --

Mr. Benjamin B. Taylor, Jr.: Right.

Justice Felix Frankfurter: What you say is two-thirds?

Mr. Benjamin B. Taylor, Jr.: Actually in -- yes, a little over two-thirds.

Actually, for the tax year in question 52 to a part of 53 was about three-quarters of a million dollars in materials and about 1 1/2 million a little more in labor and shop overhead.

We say a third and two-thirds.

Actually, it’s 32% and 38%.

Again, anticipating a portion of our argument if Halliburton Oil Well and Cementing Company, and this is the essence, there are two factual phases of this case Your Honor, the first we’ve called, the labor and shop overhead phase and the second, we have called the -- the isolated sales phase.

On the labor and shop overhead and this is the real heart of the case.

If Louisiana had its production shops in the State of Loui -- I mean if Halliburton had its production shops in the State of Louisiana instead in the State of Oklahoma, there would be no tax on anything but cost element number one materials.

There would be no cost, no sales tax upon labor and shop overhead.

So the tax is -- they’re asking three times as much tax because Halliburton conducted a multi-state operation.

At page 34 --

Justice William J. Brennan: All because Halliburton, by accident, had its shops in Oklahoma rather than Louisiana.

Mr. Benjamin B. Taylor, Jr.: That’s correct sir.

And --

Justice William J. Brennan: And the multi-state operation would still be a multi-state operation I think.

Mr. Benjamin B. Taylor, Jr.: I beg your pardon?

Justice William J. Brennan: It might still be a multi-state operation but had you had your shops in Louisiana, you can take one-third of the tax you’re required not applied in --

Mr. Benjamin B. Taylor, Jr.: That is correct.

Justice William J. Brennan: -- in Oklahoma.

Mr. Benjamin B. Taylor, Jr.: If -- at page 34 and 34 of our brief is the most important page because on that page, we have collected the two vital elements of our stipulation of fact, page 34 of the brief, that’s the larger of the yellow briefs, I’m sorry Your Honor, the thicker, cream-colored brief.

On the labor and shop overhead, it is stipulated that if Halliburton had operated on a location within the State of Louisiana, it would have been a sales tax in the State of Louisiana upon the cost of materials purchased in Louisiana and a use tax on materials purchased outside Louisiana but there would have been no Louisiana sales tax or a use tax due upon the labor and shop overhead.

Now will you note that there’s a second phase, isolated phase.

Now one reason that I started to go into the discussion of the law ahead of the facts, Mr. Justice Frankfurter, is that there are two factual circumstances which -- each of which raise the same facts and issue of law.

Now, I will revert briefly back to the Henneford decision if this -- at this time if I may.

Justice Felix Frankfurter: But before I let you do that if you'll permit me.

Mr. Benjamin B. Taylor, Jr.: Sure.

Justice Felix Frankfurter: I want to get all the facts are relevant to the legal question before I have to make up my mind, look at the Henneford case and this case and some other case.

Mr. Benjamin B. Taylor, Jr.: I --

Justice Felix Frankfurter: What I want to know -- I want to know a few more facts. Halliburton is probably receptive if the corporation -- what's it?

Duncan --

Mr. Benjamin B. Taylor, Jr.: Duncan, Oklahoma sir.

Justice Felix Frankfurter: Is it doing business in Louisiana?

Mr. Benjamin B. Taylor, Jr.: Yes sir.

Doing extensive business operation in Louisiana in the year -- the tax years --

Justice Felix Frankfurter: It’s a foreign corporation domesticated in --

Mr. Benjamin B. Taylor, Jr.: That is correct Your Honor.

Justice Felix Frankfurter: -- in Louisiana.

Mr. Benjamin B. Taylor, Jr.: As Your Honor put it in -- I think that this covers it Your Honor’s words in General Trading Company versus State Tax Commission, Your Honor said this.

Of course no state can tax a privilege of doing interstate business.

On the other hand, a mere fact that property is used for interstate commerce or has come to rest or -- excuse me or has come within an owner’s possession as a result of interstate commerce does not diminish the protection which he may -- which he may draw from a state to the upkeep of which he may bear -- maybe made to bear his fair share.

But, and You Honor put it this way, a fair share precludes legislation obviously hostile or practically discriminatory to an interstate commerce.

Justice Felix Frankfurter: Now, what happens?

Do know anything more not to delay you longer but your eagerness to get to the discussion of law.

When this truck -- when this truck comes in, they then levy this use tax on -- on the value of what is on that truck, is that right?

Mr. Benjamin B. Taylor, Jr.: That’s correct sir and there -- the word is cost.

It’s been held to be cost less depreciation.

Justice Felix Frankfurter: Of course.

Justice William O. Douglas: Now, if you had purchased this whole unit outside the state --

Mr. Benjamin B. Taylor, Jr.: And then --

Justice William O. Douglas: -- from another -- from another manufacturer and brought up within the state?

Mr. Benjamin B. Taylor, Jr.: Then it would be upon the cost price less than a depreciation which had been incurred before it came to the state.

Now --

Justice Felix Frankfurter: You mean if one had been -- if one had been -- somebody had bought it, not the manufacturer.

Mr. Benjamin B. Taylor, Jr.: That's correct.

Justice Felix Frankfurter: Not the lessor -- Halliburton is the lessor and --

Mr. Benjamin B. Taylor, Jr.: It uses under contract, not as a lessor.

Justice Felix Frankfurter: Whatever you call it.

Now the same kind of -- suppose the same interruption, I don’t mean to be disrespectful, but the same mechanism, device is put together in Louisiana by some rival of yours, what tax would it be subject to?

Mr. Benjamin B. Taylor, Jr.: Now, it would be subject to a sales tax upon the cost of materials which were purchased in Louisiana and a use tax upon the cost of materials which were reported into Louisiana by that manufacturer unit.

Justice Felix Frankfurter: Excluding all the labor and the --

Mr. Benjamin B. Taylor, Jr.: Excluding labor and shop overhead; that is the stipulation at page 34.

Justice Felix Frankfurter: Yes.

Mr. Benjamin B. Taylor, Jr.: If Halliburton had operated at a -- at a location within Louisiana, there would have been a sales tax on materials, but “there would have been no Louisiana sales tax or a use tax due upon the labor and shop overhead.

Justice Felix Frankfurter: Now, before you go to the cases, I don’t mean to direct your argument Mr. Taylor, what is your, forget the cases for a moment, what is your legal proposition which you tender to this Court regarding Louisiana’s exerted taxing power in reference to you and what is your view with the taxing power she does have over you?

Mr. Benjamin B. Taylor, Jr.: It is the basic contention of Halliburton that the interstate nature of its operations ought not in it of itself give rise to any additional tax burden, and Halliburton should not be taxed by Louisiana anymore heavily than it would be taxed if Halliburton conducted the identical operation in Louisiana minus the element of interstate commerce.

The discrimination of which Halliburton complains here arises on two different sets of operative facts, that’s the discrimination against the interstate operation that in favor of a comparable intrastate operation.

Justice Felix Frankfurter: And you're further ready to pay the equivalent -- the amount of the sales tax would be on this aggregate if brought in by resident Louisianan or manufactured there.

Mr. Benjamin B. Taylor, Jr.: It is a stipulated fact sir that Halliburton has already paid 100% of the fact -- of the tax which it would be required to pay or which a competing operator, exactly the same operation minus the element of interstate commerce would be required to pay, 100% and that is a stipulated fact.

In addition to the labor and shop overhead which we have discussed to an extent, we have the isolated sales phase of the case which we submit, raises the same issue.

Each phase, it is important to remember that Halliburton imports equipment into Louisiana for its own use and uses it there.

It does not buy or sell this equipment so as to give rise to a sales tax.

The precise facts of the labor and shop over --

Justice Felix Frankfurter: Why do we have to bother about sales tax?

The state isn't impo -- trying to impose a sales tax.

Mr. Benjamin B. Taylor, Jr.: Sir?

Justice Felix Frankfurter: The state isn't trying to impose a sales tax.

Mr. Benjamin B. Taylor, Jr.: We are comparing the use tax on the interstate -- the sales tax and the use tax of the same statute.

They have their counterparts.

The use tax is the interstate part and the sales tax is the intra.

You can’t compare -- compare the interstate but when you say interstate tax, you’ve got to say sales tax.

When you say -- when you say intra, you have to say sales tax.

When you say interstate, you have to say use tax.

Justice Felix Frankfurter: And what you’re saying -- what you're arguing in effect you're saying it is that since there's an equivalent as to local people and as to local manufacturer and as to local use, the same equivalents must pertain to this situation, is that right?

Mr. Benjamin B. Taylor, Jr.: Yes sir.

All we are asking is this postscript to the Henneford case.

Henneford said that a state tax -- a use tax although it falls only on goods which have been moved in interstate commerce, does not discriminate against the interstate commerce because it’s exactly equal to and no greater than, and therefore, it doesn't discriminate, and since it doesn’t discriminate, it doesn’t defend the Interstate Commerce Clause.

We ask for this corollary, but if in a given case, the use tax which is the interstate counterpart is heavier than the sales tax which is the intrastate phase of the same tax law.

When the interstate phase is heavier then it does discriminate and because of such discrimination is valid in the federal constitution.

Specifically, could you repeal the sales tax on the intrastate sales and leave a use tax so that it fell only upon in the interstate transaction goods imported into the state.

Could you -- if you have the use tax, the intrastate tax fixed at 50% or a 100% or a 1000% and leave the state sales tax of 2%, we submit that you could not.

Rebuttal of Mr. Chief Justice Warren

Mr. Chief Justice Warren: Mr. Taylor may -- may I ask you this question?

Rebuttal of Benjamin B. Taylor, Jr.

Mr. Benjamin B. Taylor, Jr.: Yes sir.

Rebuttal of Mr. Chief Justice Warren

Mr. Chief Justice Warren: It maybe imperative but suppose instead of being the kind of company yours -- yours is -- you’re a machinery sales organization and this machinery was built outside of Louisiana and was brought in there and you sold it in your -- in your showrooms, would you be required to pay both -- on both the value of the materials and the shop overhead and labor?

Rebuttal of Benjamin B. Taylor, Jr.

Mr. Benjamin B. Taylor, Jr.: The vendor would not pay at all --

Rebuttal of Mr. Chief Justice Warren

Mr. Chief Justice Warren: No but --

Rebuttal of Benjamin B. Taylor, Jr.

Mr. Benjamin B. Taylor, Jr.: -- but he would be the collecting agent --

Rebuttal of Mr. Chief Justice Warren

Mr. Chief Justice Warren: Yes.

Rebuttal of Benjamin B. Taylor, Jr.

Mr. Benjamin B. Taylor, Jr.: -- for the state but he would collect all his sales price.

Rebuttal of Mr. Chief Justice Warren

Mr. Chief Justice Warren: Yes, yes.

Rebuttal of Benjamin B. Taylor, Jr.

Mr. Benjamin B. Taylor, Jr.: Which would (Voice Overlap) it would include materials and labor and shop overhead and profit.

Rebuttal of Mr. Chief Justice Warren

Mr. Chief Justice Warren: Yes.

Rebuttal of Benjamin B. Taylor, Jr.

Mr. Benjamin B. Taylor, Jr.: The collector and this is the most -- fact that the Louisiana Supreme Court, we managed somehow to have seven judges disagree with us on this and this how they did it.

They said, this thing is not -- you don’t have to compare the operation of an intrastate manufacture user, who manufactures and uses it himself, you can compare an intrastate manufacture user in Halliburton’s position with what the sales tax would have been if the thing was so.

Now, the reason that throws the thing your mind into confusion right away sir is because they’re comparing non-comparables.

We say that to test for discrimination and nondiscrimination, you should compare comparables like transactions, comparable transactions to a similar contraction -- transactions.

For example, and we say that this is the only fair comparison, that if Halliburton Oil Well Cementing Company moved its shops to Louisiana, or in the alternative if they were in Louisiana, direct competitor and precisely and exactly the same operation doing the same kind of operation, would the tax of the intrastate operation and the tax of multi-state or intrastate operation be the same.

Now it’s obviously, it’s stipulated here that one of them would be taxed and the other one would not be taxed on the labor and the shop overhead.

Rebuttal of Mr. Chief Justice Warren

Mr. Chief Justice Warren: Let me -- let me ask just one more question?

Suppose this machinery was constructed in Louisiana and then went to a salesroom and was sold there in the ordinary course of trade, on what part of the cost would the sales tax be charged?

Rebuttal of Benjamin B. Taylor, Jr.

Mr. Benjamin B. Taylor, Jr.: It would not be computed with reference to cost sir, it would be computed with reference to the sale price.

Rebuttal of Mr. Chief Justice Warren

Mr. Chief Justice Warren: To the sale price, well that -- would that -- now I want to ask, would that include the cost of materials, the cost of shop overhead, the cost of labor plus profit?

Rebuttal of Benjamin B. Taylor, Jr.

Mr. Benjamin B. Taylor, Jr.: That’s correct sir or alternatively if it was a bad week and they were selling things cheap --

Rebuttal of Mr. Chief Justice Warren

Mr. Chief Justice Warren: Yes.

Rebuttal of Benjamin B. Taylor, Jr.

Mr. Benjamin B. Taylor, Jr.: It might be sold for a price less than the sum total of labor and overhead plus --

Rebuttal of Mr. Chief Justice Warren

Mr. Chief Justice Warren: Yes, I get it.

Rebuttal of Benjamin B. Taylor, Jr.

Mr. Benjamin B. Taylor, Jr.: Sales price is completely a different thing.

It is as we see it, we think that -- that to compare for fairness, you've got to compare the same type of operation.

And that sir is one of the -- what we think is one of the basic fallacies of the Louisiana Supreme Court.

Turning briefly to the other phase of the case, before I get to that, it might be interesting on the labor and shop overhead to see one of the things that the Louisiana Collector said in his motion to dismiss about this labor and shop overhead.

He says that for Halliburton, “this is not an interstate commerce problem, but a problem of management in locating its operations so as to reduce its cost of operations.

A taxpayer may reduce his tax burden by manufacturing equipment within Louisiana for his own use.

Justice Felix Frankfurter: Does that means that that -- that the choice to give you is to pay this or move from Oklahoma to Louisiana.

Mr. Benjamin B. Taylor, Jr.: Yes sir.

We've discussed that in our brief under the heading, "A problem of management", save Louisiana taxes by manufacturing in Louisiana.

Frankly, that seems to us in incredible.

The Collector contends that his position is nondiscriminatory.

Simultaneously, he argues it by a good corporate management, Halliburton could have avoided this Louisiana tax by ceasing its interstate operations and becoming an entirely domestic or intrastate operator, having its entire operation with Louisiana -- within Louisiana’s borders.

Justice John M. Harlan: Well, and as to recognize, it is a very frank statement of beliefs.

Mr. Benjamin B. Taylor, Jr.: Well, sir -- and that is his position --

Justice Felix Frankfurter: That would take care of a lot of commerce problems, wouldn’t it?

Mr. Benjamin B. Taylor, Jr.: It would sir and this case if I -- I have this -- Halliburton and Halliburton’s counsel have never been able to see any complexion to this case.

At interstate commerce, you've got a tax, take away interstate commerce, and you've got no tax and that is stipulated parenthetically with reference to the stipulation that appear on page 34.

It is one of the most eloquent arguments that we can make.

Atlantic counsel for the Collector has never mentioned those in any of his briefs or in any of his arguments to any court and we forecast that he will not mention them here unless specifically cross-examined.

Justice Potter Stewart: What’s that, the stipulations?

Mr. Benjamin B. Taylor, Jr.: Stipulations which appear found on page 34 sir.

With reference to the second factual situation relating to isolated sales, an isolated sale or a casual sale as defined by Louisiana law is a sale by a person not regularly engaged in selling the type of goods in question.

Isolated sales are expressly exempted from the Louisiana intrastate sales tax.

For example, if I should have sold in Louisiana, in Baton Rouge, before I left to let a counsel for the Collector.

I’ll offer for my necktie, assuming that I’m not regularly engaged in the business of merchandising such acts, there would have been no Louisiana sales tax on that casual isolated transaction because such transactions from persons not regularly engaged in selling for tax free by specific exemption from the sales tax and that also is stipulated on page 34 of our brief in this language because this is applied to Halliburton situation but it covers this precisely.

The entire purchase price would not have been subject to the Louisiana sales tax or the Louisiana use tax had the purchase of such equipment been made within the State of Louisiana.

Now of course when I bought this tie in Baton Rouge, it had a 2% sales tax upon it.

If I should resell it to the Collector in Baton Rouge, there would have been no 2% use tax upon it that's stipulated.

But if I should sell them in this Courtroom, this larva or this necktie and if he should take them and put them in his briefcase, the book and the necktie around his neck and move them in the channels of interstate commerce back to Louisiana and they'll use it, if he should walk into the office of the Collector of Revenue wearing his necktie which he bought in the office -- in the Supreme Court room in Washington, the Collector would say, "Did you buy that outside the state?

If you did and if you moved it in the channels of interstate commerce, you owe me a 2% use tax."

Now, of course it wouldn’t be sales tax if you had bought it in Louisiana, but whenever you add the element of interstate transportation to casually purchased or isolated -- isolated sales, we want to a use tax because there is no comparable -- or isolated transaction in the use tax, the interstate part of Louisiana sales and use tax statute.

Justice John M. Harlan: (Voice Overlap) your sales point, I take it is a supplemental point -- it's the alternative point to the --

Mr. Benjamin B. Taylor, Jr.: No sir, it's the same --

Justice John M. Harlan: (Voice Overlap) and this particular --

Mr. Benjamin B. Taylor, Jr.: That's correct.

Justice John M. Harlan: -- is going out of business.

Mr. Benjamin B. Taylor, Jr.: It is a less important point only in that it involves less money and only in that it does not recur with the complete regularity of the other point.

But as we see it, the two exactly the same, in the case of the labor and overhead, a manufacturer outside the state step one, a transport of the channels of interstate commerce and leave the state and use it.

In the case of the isolated sales, they buy it outside the state, they move it in the channels of interstate commerce and they use it.

Now, if you eliminate that multi-state activity in each one, it is stipulated that there is no tax and that stipulation which we forecast that the Collector will ignore is as follows.

In reference to labor and overhead, Halliburton operated in a location within the State of Louisiana, there would have been no Louisiana sales tax or use tax due upon the labor and shop overhead.

With reference to isolated sales, again at page 34 stipulated, the purchase price would not have been subject to Louisiana sales tax or the Louisiana use tax at the sale -- at the purchase of such equipment been made within the State of Louisiana.

Henneford simply -- in the Henneford case, the Silas Mason Company had brought into the State of Washington heavy moving equipment to construct the Grand Coulee Dam and they said, "Look, you can’t put this use tax on us by definition, it implies only to goods that have been brought across the state line in interstate commerce."

Not so, said Mr. Justice Cardozo through this item of the use tax only falls upon goods which have been moved in interstate commerce but the tax is exactly equal to and does not discriminate and therefore it does not offend the Interstate Commerce Clause.

Rebuttal of Mr. Chief Justice Warren

Mr. Chief Justice Warren: We'll recess now.

Print this transcript Transcript: 

Argument of Benjamin B. Taylor, Jr.

Chief Justice Earl Warren: Number 264, Halliburton Oil Well Cementing Company, Appellant, versus James S. Reily, Collector of Revenue, State of Louisiana.

Mr. Taylor, you may continue your argument.

Mr. Benjamin B. Taylor, Jr.: Mr. Chief Justice, members of the Court.

We wish to recapitulate briefly our arguments of yesterday and reserve our remaining time for rebuttal.

Louisiana sales tax as the intrastate tax upon the intrastate sales.

Louisiana use tax is the interstate tax which falls only upon the use within the State of Louisiana of goods imported into the state across state lines and then used in Louisiana.

Halliburton simply says that the interstate use tax ought not to be any heavier than the intrastate sales tax would be in an identical situation minus only interstate commerce.

Justice Felix Frankfurter: I take it you would say that a use tax, merely a use tax, no sales tax at all, would be stricken down as to interstate tax?

Mr. Benjamin B. Taylor, Jr.: That's correct in our view Your Honor.

Justice Felix Frankfurter: I mean in your view?

Mr. Benjamin B. Taylor, Jr.: Oh yes, sir.

Well, actually, I -- it's inconceivable sir to me that the use tax standing alone since by very definition, it implies only upon goods imported across state lines.

I should -- let me straighten that out a little bit.

Justice Felix Frankfurter: Why is that -- I don't quite -- in the nature of things?

Mr. Benjamin B. Taylor, Jr.: In the nature of the Interstate Commerce Clause and the protections afforded by it.

If the use tax as it now exists (falling only upon goods which have crossed state line).

A use tax in that nature if it stood alone and there were no comparable intrastate sales tax, we submit that that be -- unconstitutionality would be rather obvious.

Chief Justice Earl Warren: Mr. Taylor, one thing that's bothering me is this, suppose there were two manufacturing plants in this city of -- in Oklahoma and one of them was yours where you manufactured this equipment.

Next to you is another one that -- another plant and that manufactured them for sale and you brought them -- brought them into the State, they, one of theirs, you, one of yours on the same car, let's say in railroad car and you got to the -- you got to the Louisiana line.

And you insisted that you only be charged for the materials, the tax on the materials that are involved and that the other should be taxed on both materials and labor and in shop equipment merely because they're going to sell in interstate commerce.

Would there not be -- or would there be, let me say a discrimination as against the other party?

Mr. Benjamin B. Taylor, Jr.: Now in that case Your Honor, you're -- you are supposing that they were two interstate operators.

Now, there's nothing parenthetically requires -- the Interstate Commerce Clause doesn't cover two interstate operators.

You'd get over to due process, but again, I miss -- I'm getting away from my point.

What -- my point is this, if Halliburton were selling then the appropriate comparison would be Halliburton the interstate salesman with an intrastate salesman, since Halliburton is not selling but he's manufacturing for his own use.

We submit that the proper comparison is between Halliburton, the interstate manufacturer-user and comparable intrastate comparab -- intrastate manufacturer-user.

One of the basic fallacies sir as we see it at the Louisiana Supreme Court and of the Louisiana Collector is that in their test for discrimination, they do compare such unlike dissimilar and non-comparable transactions.

And if they make that argument here today and we anticipate that they will, we would like the attention of this Court to be already focused upon its area and speciousness.

It is totally impossible for the Collector of Revenue of the State of Louisiana to sustain his position.

We say impossible, and we say that deliberately, sustain his position on the labor and shop overhead fees that is if there's no arbitrary tax discrimination.

If he does make a fair comparison between two comparable economic activities, one interstate and the other intrastate, we submit that the test for discrimination one must compare comparables, that the only fair comparison is to compare the tax burden of an outers to out-of-state.

That is an interstate manufacturer-user such as Halliburton with the tax burden of a comparable intrastate manufacturer-user.

In other words, if Halliburton had a direct competitor in Louisiana, in exactly the same business operation lacking only the interstate commerce's element with the tax burden of each be the same.

Now, since the collect --

Justice William J. Brennan: Well if -- are you saying then that you don't question that Louisiana made for purposes of classification setup a classification of manufacturer-user but that within that classification, it may not discriminate between the out-of-state manufacturer-user and the intrastate manufacturer-user?

Mr. Benjamin B. Taylor, Jr.: We would -- we don't feel it's quite necessary to make that basic premise.

We say that if you are going to -- no, I agree with you exactly.

I'll go back and pick it all up.

If you're going to talk about a class, a group of people, a bunch of manufacturers who use their own product, you've got to treat them all alike.

If Halliburton came into Louisiana and sold it, it would be proper to compare them with a wholly intrastate operation where the operation was simply a sale.

Justice William J. Brennan: Well, that would be a classification of vendors.

Mr. Benjamin B. Taylor, Jr.: That's correct.

Justice William J. Brennan: And this is a classification you suggest of manufacturer-user?

Mr. Benjamin B. Taylor, Jr.: That is correct sir.

That is our position.

We say that since the collector has stipulated that the burden here would be three-to-one as compared to an intrastate manufacturer-user, that's actually a little misleading.

Its taxation price has no taxation on the labor and the overhead element.

Justice Felix Frankfurter: Could it pick out these particular commodities not by name of course or description, but could it pick out a class of commodity, the incident of which is relevantly limited?

A state cannot pass a sales tax on everything, as a matter of fact that the qualifications and exceptions, are they not all over the place in all the sales tax, is that correct?

Mr. Benjamin B. Taylor, Jr.: That's correct sir.

Let us --

Justice Felix Frankfurter: And as to use tax for sale, is it not?

Mr. Benjamin B. Taylor, Jr.: Yes sir.

Justice Felix Frankfurter: Now, could it pick out for purposes of a use tax particular kind of hardware, without infringing upon such capriciousness whatever that maybe, but the classification itself is not agreed for protection of the law?

Mr. Benjamin B. Taylor, Jr.: Now we don't think that you could repeal the sales tax and keep the interstate use tax.

We don't think you could put the sales tax at 2% and put the interstate use tax at 500%.

Justice Felix Frankfurter: Well, but the question that I put bunglingly is whether the subject matter is such that you are comparing pomegranates with pineapple with tomatoes, could a state say, "We only have sale taxes on vegetables and not on fruits", or "sales tax on fruit and not on vegetable", and vice-versa?

Mr. Benjamin B. Taylor, Jr.: Yes, Your Honor, the sale -- the sales tax just does exactly that.

It ex -- it has many exemptions.

Justice Felix Frankfurter: Alright.

Mr. Benjamin B. Taylor, Jr.: It is our position --

Justice Felix Frankfurter: Now, could it restrict it to the kind of things to be as neutral as that, as Halliburton people bring in?

So long as it doesn't say only stuff brought in but have a classification of things whoever falls within that category is subject to the sale tax as well as the use tax?

Mr. Benjamin B. Taylor, Jr.: In Louisiana sir, there are certain statutes on our books which apply only to cities over 500,000 and that includes to only New Orleans.

Now conceivably, that type of thing could be done but that --

Justice Felix Frankfurter: You're not alone in that?

Mr. Benjamin B. Taylor, Jr.: Right sir.

But that I don't believe is what we're talking about here.

We say for example that they could --

Justice Felix Frankfurter: But in its application may it not apply to that?

Mr. Benjamin B. Taylor, Jr.: Conceivably it might sir, but I don't think we have that situation here.

For example -- let's put it this way.

The sales tax is historically proc -- preceded the use taxes.

It was soon found that although people would buy their pencils and their cigarettes in the State, they would go across the State into the non-taxing State for their automobiles and their refrigerators.

Now, so they put in the use tax to make them equal.

Now, let's suppose that in the Louisiana tax, in the next legislature, they should say in Louisiana, automobiles are going to be exempted from the sales tax.

I don't think that they could collect a use tax on imported automobiles.

I think by definition, it would be unconstitutional.

Now, one of the incredible things that I think you gentlemen will find in this brief amicus curiae, one of the briefs amicus curiae is that Louisiana fields are total freedom, a total freedom to exempt from the sales tax without any comparable exemption from the use tax.

Incredibly, they got an exemption from the sales tax of "vessels and ships and ships and supplies and vessel supplies if made in Louisiana shipyards."

If this Court says that the use tax -- if this Court should uphold them in saying that the use tax, the interstate tax shall be heavier than the intrastate sales tax, then we submit that they could refill the sales tax and keep the use tax and we submit that by implication, this Court would uphold that incredible exemption, exemption from the sales tax of vessels made in Louisiana shipyards.

If you have a vessel that's made in Louisiana shipyard and it's sold, there's no sale on the original transaction.

If it's resold in the casual sale, there's no sale -- sales tax on the original transaction.

If you go across the Biloxi though or to some state that doesn't have a sales tax law and you'd get a vessel and you trailer it back -- float it back through the Rigolets into Louisiana then when you bring it up to the state line they collect -- they'd flagged you down say, "That's not a vessel that was made in Louisiana, pay me 2% use tax.”

The collector feels an incredible freedom we feel here to discriminate against interstate commerce.

Justice Felix Frankfurter: Do you think that would make of this country an uncommon market?

Mr. Benjamin B. Taylor, Jr.: That is correct sir, I should say.

Henneford versus Silas Mason Company in that case, this High Court upheld a use tax of the State of Washington, although it fell only upon transactions involving interstate commerce because in the case then at bar, the use tax of the State of Washington did not exceed the state -- the sales tax of the same state but was merely complementary to and precisely equal to it.

And therefore, the use tax did not discriminate and hence did not offend the Interstate Commerce Clause.

Now, it is unquestionable we submit that this was the rationale of the Henneford case.

In the Henneford versus Silas Mason case, Mr. Justice Cardozo had this to say, "Equality is the theme that runs through all sections of the Washington statute.

When the account is made up, the stranger from afar is subject to no great burdens than the dweller within the gates.

In each situation, the burden of a use tax is balanced by an equal burden of the sales tax where the sale is strictly local.”

And Mr. Justice Cardozo concluded a non-discriminatory tax has never been regarded as imposing a direct burden upon the interstate commerce.

Now, it's our simple position here today that implicit in the Silas Mason case and correctly so is that whenever the interstate use tax does levy a burden which is heavier than the burden of the comparably intrastate sale tax in an identical situation, minus only the element of interstate commerce, then the interstate use tax, it does discriminate him because of such discrimination is violative of the federal constitution.

In Silas Mason, the use tax was upheld because it was not heavier than the sales tax and therefore no discrimination.

All we seek here is what seems to us to be the already implicit corollary ruling that if in a given case the use tax is heavier than the sales tax then it does discriminate against on -- interstate commerce as unconstitutional.

Why has this issue not reached the State -- this Court before?

The reason is simple, wherever it was raised before it's been decided for the taxpayer at a lower level.

In Ohio and North Dakota, it's been ruled administratively that since labor and overhead are excluded from the tax base of the sales tax, the constitution of the United States requires a similar exclusion from the use tax base.

In California and Oklahoma, the courts have upheld the constitutionality of the use tax carefully interpreting the use tax base to exclude all items excluded from the sales tax base and pointing to the constitutional necessity for so doing.

In one case and only one, in Alabama, the issue was squarely raised.

It was raised in the isolated sales phase of the case.

There were five barges that were sold in an isolated sale and the State of Alabama took the position or act as an isolated sale exempted from the sales tax but there's no comparable exemption for the use tax on identical situation.

Of course that case is not authority for this Court, but we submit that it persuades you because it's intelligently written and we -- we've gone to it at length in our brief and it holds precisely what we have said here in almost towards one (Inaudible).

Justice Felix Frankfurter: What's the citation of that case?

Mr. Benjamin B. Taylor, Jr.: That's State versus --

Justice Felix Frankfurter: Its Bay --

Mr. Benjamin B. Taylor, Jr.: Bay --

Justice Felix Frankfurter: -- Towing Company --

Mr. Benjamin B. Taylor, Jr.: Bay Towing & Dredging Company.

Justice Felix Frankfurter: Alright.

Mr. Benjamin B. Taylor, Jr.: That's correct.

Justice Felix Frankfurter: Thank you very much.

Mr. Benjamin B. Taylor, Jr.: In that case, the Court said this, as we see it, if the use tax is construed as imposing a tax on the use in the state of tangible personal property purchased outside the State in casual and isolated sales transactions, such tax would constitute an unlawful discrimination against interstate commerce contrary to Commerce Clause of United State Constitution since no similar equivalent tax burden is imposed in connection with the purchase of such property in casual and isolated sales transaction within the State.

Can it -- continue to quote, "The United States Supreme Court has held that a use tax integrated with a sales tax in amount of some odd hours is not violative of the Commerce Clause when such a system of taxation does not discriminate against transaction in interstate commerce but merely equalizes the burden of taxation on purchases made in the interstate commerce and on strictly local sales", citing Henneford versus Silas Mason Company.

However, if such a system of taxation places a discriminatory burden on transactions in interstate commerce which would not apply to local sales, the use tax will become unconstitutional in its operation.

As the Supreme Court of the United States said in Best versus Maxwell, the Commerce Clause forbids discrimination where the forthright are ingenious, in each case it is our duty to determine where the statute under attack, whatever its name maybe, well in its practical operation, work discrimination against interstate commerce.

I believe that's our case.

Chief Justice Earl Warren: Mr. Sanford.

Argument of Chapman L. Sanford

Mr. Chapman L. Sanford: Mr. Chief Justice, may it please the Court.

We of course admit that the constitutional rules applicable to the questions raised by Halliburton had long been settled.

We can't discriminate against interstate commerce, we can't tax interstate commerce but we feel then that the important thing to show here is the operation of Louisiana use and tax law and to show that it does not in fact discriminate against interstate commerce.

But before giving into the law itself, I would comment briefly on the stipulation in how this case came about.

We of course stipulated how Halliburton operates.

They are an interstate operation and they operate with these trucks which they manufacture themselves in Oklahoma.

There's no question, however, that these trucks become a part of the massive property in Louisiana and they admit that of course because they are willing to pay a tax on it.

They are saying that they want to pay a tax upon the cost to them of the nuts and bolts and the chassis and the sheet metal that went into creating a highly specialized piece of machinery which is what it was in Louisiana the time that it came in.

Justice Hugo L. Black: Would it bother you if I ask you now, suppose that same machine has been manufactured in Louisiana, would there have been a sales tax applied to anything sold in that State?

Mr. Chapman L. Sanford: Yes sir, they would have been.

Justice Hugo L. Black: On what basis?

Mr. Chapman L. Sanford: On the basis of the sales price, the price for which the truck were sold would bear 2% tax at the time of sale.

Justice Felix Frankfurter: Suppose it weren't sold but the services afforded to contract because I understand it --

Mr. Chapman L. Sanford: In other words --

Justice Felix Frankfurter: This truck, this contraption or this combination of things isn't sold in Louisiana, is it?

Mr. Chapman L. Sanford: No, sir.

Justice Felix Frankfurter: What is the transaction in your words?

Mr. Chapman L. Sanford: As to what happens here?

Justice Felix Frankfurter: No, what is -- on what are you imposing a sales or use tax?

Mr. Chapman L. Sanford: In this particular case, we're --

Justice Felix Frankfurter: Here --

Mr. Chapman L. Sanford: -- imposing the use tax upon the fair market value as of the first moment that the property was withdrawn from commerce and became a part of the massive property in the State of Louisiana --

Justice Felix Frankfurter: But --

Mr. Chapman L. Sanford: -- for use there.

Justice Felix Frankfurter: Suppose exactly the same transaction took place entirely within Louisiana?

Mr. Chapman L. Sanford: We have stipulated Your Honor.

In other words, the stipulation are that we would not tax the shop overhead and labor.

Justice Felix Frankfurter: Well, in dollars and cents (Voice Overlap) --

Mr. Chapman L. Sanford: I wouldn't want to say this that the -- and that is what I was just getting too incidentally.

Justice Felix Frankfurter: Well, just tell in terms of dollar and cents, what you do to this or what you seek to do or have done on the protest, what the use tax amounts to in dollars and cents that Justice Black asked on what it is, what the basis of it is, because it came in from Oklahoma --

Mr. Chapman L. Sanford: Well --

Justice Felix Frankfurter: -- has compared it exactly the same thing had been done, the same arrangement, the same contractual arrangement or whatever it was wholly playing its role, this inanimate role in Louisiana.

Have I made my question clear?

Mr. Chapman L. Sanford: Yes sir, I'm just trying to think I want --

Justice Felix Frankfurter: Because I just want to be sure that I've stated it clearly.

Mr. Chapman L. Sanford: Well, I will answer your question this way.

For the purposes of this case, we are arguing this case as if -- if Halliburton itself were manufacturing this particular truck in Louisiana for its use in Louisiana at the time they had purchased the component parts within Louisiana, it would have pay a 2% tax on the cost of those component parts.

Or if it had imported those component parts into Louisiana, it would have pay the use tax on the fair market value across to those component parts at the time they came into Louisiana for use.

That apparently is what the stipulation meant and we have argued it that way here.

Mr. Taylor said yesterday that we hadn't commented on the stipulation below, we did.

And --

Justice Felix Frankfurter: I don't care about that.

But I -- I'm still maybe to my own comprehension --

Mr. Chapman L. Sanford: But --

Justice Felix Frankfurter: -- having yet gone -- what it is on what you seek to assess the use tax as this organic whole, as this composite thing comes in and would you be doing exactly the same thing if it had all been done in Louisiana?

Mr. Chapman L. Sanford: Well, let me get an explanation of the law there, at this time, I think that will answer it to show how the law does work.

The sales tax law and the use tax law and to show Your Honor then why there isn't a discrimination, I think that Your Honor will then understand a little better what we are doing.

Justice Felix Frankfurter: Can you before you go unto details, tell me that the results in dollars and cents would be exactly the same whether it was brought in from Oklahoma or it was all done in Louisiana?

Mr. Chapman L. Sanford: Not to Halliburton.

But what -- I'm going to show Your Honor that we feel that it doesn't make any difference and why.

Justice Hugo L. Black: May I ask you, I'm curious because this seems to bring up a new record of the use tax and the sales taxes which perhaps have not been covered by, is it true or not that ordinarily when completed products of both intrastate from another State that the -- and the use tax apply that the -- it's imposed on the value of the completed articles rather on the aggregate of some of the parts?

Mr. Chapman L. Sanford: Your Honor is talking about other states?

Justice Hugo L. Black: Well, take your State.

Mr. Chapman L. Sanford: Our State imposes the use tax on the value of the completed item.

We take the thing as of the moment it becomes a part of a massive property in the State.

Justice Hugo L. Black: Well, there are many things that going to the manufacture of products.

I'm a little puzzled by this myself up to this time.

Many things go into the manufacture of products, take the tomato that was mentioned.

You have a lot of work done in another state, some other just buy an insecticide to kill the -- to make it grow.

There, you think that are into it.

Your use tax, however, when you -- when that tomato comes in, if you do have a use tax on groceries?

I suppose --

Mr. Chapman L. Sanford: We do Your Honor.

Justice Hugo L. Black: I suppose your use tax applies to that regard to how much labor was put on in anywhere else, does it?

Mr. Chapman L. Sanford: That's correct.

Justice Hugo L. Black: So that you'd be in the same situation as the farmer who was shipping tomatoes in and -- for his own use, of his own factory use as you are here with Halliburton.

Mr. Chapman L. Sanford: I think we can show this differed.

Everybody is treated equally in this case, as of the moment that we apply the tax.

I think there's no question about that.

The only question is that possibly you can call this a loophole.

I doubt that it's even that.

And the -- if the question is going to resolve itself down to whether or not a taxpayer who doesn't avail himself of a loophole is discriminated against because they exist the loophole --

Justice Hugo L. Black: You don't have --

Mr. Chapman L. Sanford: -- not that -- there's anybody --

Justice Hugo L. Black: You (Inaudible) yet has not met the situation --

Mr. Chapman L. Sanford: No sir.

Justice Hugo L. Black: -- not attempted to -- alleviate a situation of this kind, one, if its sales tax on the complete value of what's sold as to use tax on a complete value of what's used.

Mr. Chapman L. Sanford: Yes, sir.

Justice Hugo L. Black: Without regard to where it was produced or anything else to that kind but you do not because that's not in the usual pattern of sales in use taxes.

You do not apply use tax on a thing it's sold in the State.

And that's what --

Mr. Chapman L. Sanford: That's correct (Inaudible).

The law isn't --

Justice Hugo L. Black: That's (Voice Overlap) --

Mr. Chapman L. Sanford: -- written exactly that way.

I think that there we could abolish the sales tax and the use tax would apply.

But I don't think it makes -- I mean if we abolish -- take everything out of the law pertaining to sales tax, well then there would be a use tax.

Justice Hugo L. Black: If you had a law like, I believe its Indiana that has one of that kind?

I'm not sure.

Mr. Chapman L. Sanford: What -- our law applies like this and the basis or at least -- let's take the rate first, the rate is 2%.

In both cases, the use tax is 2% and the sales tax is 2%.

So we have at least an equality of the amount of the tax we are charging.

And in the basis of the tax in a sale of course is the sales price and it's that would or then it be the fair market value and it's easily established in that case because a willing seller and a willing buyer right then and we have a fair market value.

In the use tax, we have the basis is the fair market value.

It may be a little hard to determine but the basis is identical to that of a sales tax if a taxpayer can show that the fair market value as of the moment it is withdrawn from commerce to use in Louisiana, if he can show a similar sale for identical item, well of course that's the value upon which this 2% is going to be applied.

So we have the rate and the basis identical and now, we have to look to see if the time is identical and it is.

In the sales tax, it is the sale for retail and that of course is the first taking by a consumer of the property for use or consumption in the State, and that's the moment when the sales tax applies.

And the use tax is identical because the use tax does not apply into a consumer, brings it in to the State for use or consumption, it is withdrawn from commerce.

And as of that moment, the moment where the consumer has it in his possession in Louisiana for use or consumption in Louisiana, is that -- is when the tax applies.

And therefore, we have the sales tax and the use tax with the same rate, the same basis and the same moment of taxation and it applies for component parts or completed items.

The fact that a person can go down to the hardware store say and purchase tools and component parts to make an item for himself at one rate and take those home and apply his labor to it and create an item of greater value than the component parts, I don't believe discriminates against the same man -- another man who goes to the store and buys what -- a similar item to where it's been created by the man at his house.

In other words, if you have a -- if you want a nice desk that may cost $500 in the store, you go buy the lumber for a hundred, you go home and you make a nice desk for yourself, you'd pay tax for a hundred.

Another man that buys an identical desk at the store pays $500 and he pays the tax of $500.

Justice Felix Frankfurter: But if the fellow in Louisiana buys this $100 worth of lumber and makes a desk and sells it for $500, what is he taxed off?

Mr. Chapman L. Sanford: If it's a casual sale Your Honor, in other words he's not in the business of selling furniture or desk or building desk to sell, well there is no tax because there is an exemption for a casual sale.

Justice Felix Frankfurter: Now, suppose whether the desk or something else, instead of being sold, it's left.

Suppose use tax on linen in Louisiana, use tax on linen, sales of linen.

Mr. Chapman L. Sanford: Yes, sir.

Justice Felix Frankfurter: But not suppose of -- I see these (Inaudible) or whatever they're called that lease or laundry service, merely the use of linen, you tax that in Louisiana?

Mr. Chapman L. Sanford: We have a rental tax Your Honor.

Justice Felix Frankfurter: A rental tax.

And the rental tax of linen brought in, in combination from outside of State with the same as the rental tax within?

Mr. Chapman L. Sanford: Yes sir and the person that lets the linen would pay a use tax on the linen that he handed.

Justice Felix Frankfurter: Now, this same transaction, I'm trying to understand whether this service that Halliburton offers are not selling this combination of products, but merely giving its service, is there anything comparable to that that this tax at the same rate --if the rate isn't enough that you can have the same rate and still have one rabbit and one horse situation.

If it's the same situation, is there anything -- any analogy to this service of Halliburton is rendering by stuff brought in from Oklahoma, does anything like that take place in Louisiana when -- or everything takes place in Louisiana with which you can compare it?

Mr. Chapman L. Sanford: I don't believe Your Honor.

Let me answer the question this way and I see if I understand it.

There's very little manufacture in Louisiana, for own use or for sale and --

Justice Felix Frankfurter: Suppose all this took place hypothetically in Louisiana, what would happen?

Mr. Chapman L. Sanford: The trucks that were used in Louisiana Your Honor, the tax would have been imposed upon the component parts at 2% tax.

Justice Felix Frankfurter: That isn't done here, is it?

Here, you impose a use tax on the value of -- as though, it was sold, as though the entirety was sold.

Mr. Chapman L. Sanford: That's correct and that's what our law says that the --

Justice Felix Frankfurter: But if it was all done in Louisiana, it would be merely tax on the basis of a part, is that correct?

Mr. Chapman L. Sanford: According to the stipulation, that is correct Your Honor.

Justice Felix Frankfurter: Well but that's the case we've got, isn't it?

Mr. Chapman L. Sanford: That's correct.

That's the case.

Well, let me say this --

Justice Felix Frankfurter: What are we to do with it?

We've got to decide on the basis of that -- of the case though.

Mr. Chapman L. Sanford: Alright, I agree with you Your Honor, that's correct.

But it doesn't necessarily mean that there is a discrimination here, because --

Justice Felix Frankfurter: Well, there isn't -- they may not be here but the answer you've given me if I understood that it showed discrimination that if it were all done within Louisiana hypothetically, then you'd only tax on the basis of the parts.

Mr. Chapman L. Sanford: I -- well, I would suggest that we have to compare use and sales taxpayers in equal position.

Take two manufacturers of these trucks in Louisiana, one imports all his component parts and pays a use tax on them.

The other buys all these component parts in Louisiana.

They pay identical taxes.

Manufacturers in Louisiana pay identical taxes.

And in this case, what they are saying is not that there's any competition in Louisiana for them, not that the -- not that any one manufactures these trucks there but they say, "We could”, that's what the stipulation says.

They could manufacture it there and thereby reduce their use tax burden or there sales tax burden.

But as Your Honor knows, we can't equate all the taxes, but they would incur other taxes.

They have property taxes.

They have use and sales taxes on their tools, on their equipment and they have ad valorem taxes on the movables as well as the immovables.

They increase -- if they operated there, they would increase the apportionment factor for their income and their franchise tax.

In other words --

Justice Felix Frankfurter: That's the --

Mr. Chapman L. Sanford: -- they're in a -- if the manufacture there -- they would be in a different tax position.

Justice Felix Frankfurter: I understand -- I follow you but that's a totally different line of argument instead of saying they're equal.

What you're saying is now is a very different thing.

Mr. Chapman L. Sanford: Well, you --

Justice Felix Frankfurter: That you've got to take the entirety of the tax structure of a state and the internal seller, the local seller not only pays that sales tax, he pays a lot of other things.

And therefore, you could differentiate at your argument because the out-of-towner is immune from those things to which he would be subjected.

Mr. Chapman L. Sanford: No sir, I don't want to say that we differentiate or that there is an inequality because I would like to say that as of the moment of taxation as of the -- which is the way we would have to look at a piece of that item of tangible personal property, as of the moment that it becomes part of the property, of a massive property in the State, we say, "Well, let's see which you have here.”

And this discrimination Your Honor doesn't just -- if there's a discrimination, it doesn't just operate against the use taxpayer.

It would operate against a sales taxpayer in Louisiana.

Justice Felix Frankfurter: I don't know what that means to become a massive, part of the massive property --

Mr. Chapman L. Sanford: That is -- it's withdrawn --

Justice Felix Frankfurter: I understand but the --

Mr. Chapman L. Sanford: -- from inter -- from commerce.

Justice Felix Frankfurter: I know the phrase but I don't see its application.

Mr. Chapman L. Sanford: It --

Justice Felix Frankfurter: Drawn what has happened here, they come in from outside into the State and then they've merely concluded their interstate transaction which if it be that and nothing else is immune from state taxation, except to the limited extent that you can cut off some local activities.

Mr. Chapman L. Sanford: Well, let me point this out then that most items that are sold at retail at Louisiana come into the State, in interstate commerce and I think that's probably the case in all states.

Justice Felix Frankfurter: Yes and they're put on the shelf and that's (Voice Overlap) --

Mr. Chapman L. Sanford: And they're put on the shelf.

Justice Felix Frankfurter: That could be -- put part of the mass -- becoming part of the massive (Voice Overlap) --

Mr. Chapman L. Sanford: Right.

And the same thing happens in the use tax case.

They bring in interstate commerce, items identical to those that on the shelf and it is withdrawn from commerce (Voice Overlap) --

Justice Felix Frankfurter: But you can't tax them before they're put on the shelf.

Mr. Chapman L. Sanford: Right.

We don't seek to do that here nor -- and he admits that we don't do that here.

He admits he owes the tax.

He admits that the tax is applicable.

He's not saying that he is in interstate commerce.

And we do not -- we wouldn't think about taxing if he were in interstate commerce.

He's out of interstate commerce, commerce is at an end and we're right as far as that's concerned.

We're right within the Silas Mason case.

Commerce is at an end, it's for use there just like anything on the shelf.

And so the keep -- the property is in identically the same position with its -- whether it's something that bears the sales tax that came in interstate commerce or something that bears a use tax that came in interstate commerce.

Justice Felix Frankfurter: I think the qualification is concealed or rather covered by your freight.

If in use there and the question of the case as I see it is what the -- it is.

Mr. Chapman L. Sanford: Well, let's take a similar truck Your Honor that is made in Duncan, Oklahoma by a competitor.

This is by the Mr. Chief Justice's hypothetical.

He comes into the State for sale.

It goes on the shelf in a retailer's shop.

It's there for sale and it came in an interstate commerce.

A customer comes in and says, "I want to buy this truck.”

Well, he pays of course a price that is the equivalent to the value or which would be the fair market value, and which is the equivalent price that we impose -- the use tax on this case.

And interstate commerce actually has no bearing on it because the commerce is at end in both cases.

And what we are equating, we are equating the competitive position of the taxpayers who at the moment of taxation, who had the first taking of an item for use in Louisiana, pay a tax upon that item that they have in that possession there.

I think Your Honor was mentioning a sandwich that you might bring in from Texas yesterday to eat in Louisiana.

Well, let's see how serious this is because -- let's say you brought -- you can buy in Louisiana 12 loaves of bread for $3.

You go out-of-state and you buy the flour, and the salt, and the milk, and you come back into the State and you make your 12 loaves of bread.

You bought your flour and component parts of your 12 loaves of bread for 50 cents outside of the State.

You have 12 loaves of bread in both cases, in the case where you yourself made the bread.

You paid one cent.

In the other case where you bought it in Louisiana, you paid six cents.

If there's a discrimination Your Honor, it's working both ways.

It's working against the sales taxpayer of the completed item as well a use taxpayer on a completed item as of the moment it comes in.

There's no discrimination against the interstate commerce in the case that I just gave Your Honor, it's the man that pays the use tax that has an advantage.

And actually, there's no advantage as far as revenue is concern to the State in this loophole if we might call it that, because Louisiana would be losing taxes by not taxing -- by not looking to the final product that the user of component parts might be wanting to make.

All we've done is -- as I think the legislature has done is giving an easy way to administer tax.

In other words, if we want to look to the end product, we would have -- anybody that bought something that might be a component part, they would have to declare what they were going to do with it.

We'd say, "Well, if you're going to make a truck out of that, well you must tell us when the truck's completed, we want to come see what you made to see with the fair value of it is.”

Then -- and as I point out, it works both ways.

It doesn't work against interstate commerce.

It works for interstate commerce.

It is something that's available to anyone, whether it'd be Louisiana resident or a non-resident.

It's a loophole that's available to anyone.

It's a loophole that's not being used by anyone to our knowledge.

Chief Justice Earl Warren: Mr. Sanford, am I correct in assuming that that this use tax, the incidence of it is the moment it comes into your state and is available for use?

And that at that time, you have no concern over where it was manufactured or how it was manufactured, or how it was acquired, or whether it was acquired cheaply or whether it was acquired expensively, do you put the tax on the actual value of the commodity, whatever it is as it comes in to your State.

And that you would do the same thing -- you do exactly the same thing for any product that is sold under your sales tax?

Mr. Chapman L. Sanford: That's correct Your Honor except for one thing.

We will -- we do give a tax credit for any similar taxes paid to another State.

Chief Justice Earl Warren: Yes, yes.

I understand that.

Mr. Chapman L. Sanford: Which we feel in getting to the casual sale aspect for a moment makes the casual sale --

Chief Justice Earl Warren: Well, I am -- I suppose then if the petitioner was to prevail, this would apply not only to a situation like his, but would apply to thousands of items in your State.

And I wonder if it would apply to situation like this if a person had an old automobile and he sent to Detroit for an engine, to replace the engine that was is in it and he brought it in there to Louisiana.

He would have to pay on the actual value of that engine which would include labor and shop overhead and every thing else where if he built the same thing in Louisiana, he wouldn't have to pay for any sales tax except on the parts that go into it.

Mr. Chapman L. Sanford: Yes sir, that is correct.

And it would apply to --

Chief Justice Earl Warren: To almost anything.

Mr. Chapman L. Sanford: Anything, right.

Anything that someone purchased something that he may improve in any way.

Chief Justice Earl Warren: Yes, yes.

That's (Voice Overlap) --

Mr. Chapman L. Sanford: And created --

Justice Felix Frankfurter: In what (Inaudible).

Mr. Chapman L. Sanford: And that's why --

Chief Justice Earl Warren: So this isn't really as peculiar a situation as one might think?

Mr. Chapman L. Sanford: (Inaudible).

Not at all and we were surprised by the Alabama case.

But Ala -- if the Alabama case, there's one thing different about the Alabama situation and that's that they don't give a tax credit for taxes paid.

Chief Justice Earl Warren: In other states?

Mr. Chapman L. Sanford: In other states.

Chief Justice Earl Warren: I see.

Mr. Chapman L. Sanford: And it may or may not make a difference but they don't and we do and if they can show they pay a tax on that airplane -- that a tax having paid on that airplane we'll say, "Fine, you get a credit for it up to 2%.”

But it would apply to any situation whether you import it or bought, let's say retail it that a person might improve or increase the value of by applying his own work.

It -- it's not really designed in any way to favor the industry in Louisiana or to increase the revenues in the State.

Justice Felix Frankfurter: Is this used tax, the incidence of this tax -- let me ask you this, is the incidence of this tax is what it means to Halliburton in dollars and cents the same as though they brought this stuff in and sold it to the owners of oil well instead of giving the service on (Voice Overlap) --

Mr. Chapman L. Sanford: Yes sir, that's correct.

Justice Felix Frankfurter: As though they have sold it.

Mr. Chapman L. Sanford: As though they sold it.

Justice Felix Frankfurter: Now -- but in -- and therefore, the sale of the same combined aggregation of things if sold in Louisiana would be subject to the same tax, the same rate on the same basis, is that right?

Mr. Chapman L. Sanford: Yes sir, I would correct --

Justice Felix Frankfurter: But what I want to -- what troubles me is that I don't quite understand but you can say you treat it as though there was a sale in Louisiana when there wasn't a sale.

And I want to know what the comparable thing to that kind of an arrangement is in Louisiana with reference exclusively to Louisiana factors or can't you compare them?

Isn't there any such thing in Louisiana as the rental of this kind of equipment?

Mr. Chapman L. Sanford: I don't know that I understand the question Your Honor but --

Justice Felix Frankfurter: If it's not a sale in Louisiana.

Mr. Chapman L. Sanford: It's a use in Louisiana.

Justice Felix Frankfurter: If a -- it's a use tax based on the value of something that's rented, is that right?

Mr. Chapman L. Sanford: Well, no matter what they do with it Your Honor.

Justice Felix Frankfurter: But they don't sell this, do they?

Mr. Chapman L. Sanford: No sir.

Justice Felix Frankfurter: In effect, doesn't sell it.

Mr. Chapman L. Sanford: No sir.

Justice Felix Frankfurter: It rents it to someone else.

Well I don't think they even rent it Your Honor, they use it themselves because I don't believe they were --

Mr. Chapman L. Sanford: Well, they use themselves?

Justice Felix Frankfurter: In other words, they are in business there.

They put it on -- people call in and say, "We need some cement."

Mr. Chapman L. Sanford: I thought there was a contract, with whom was the contract?

Justice William J. Brennan: Is this like a plumber who brings his equipment to do a certain job that's --

Mr. Chapman L. Sanford: That's the way I understand it.

Chief Justice Earl Warren: Or a major --

Justice Felix Frankfurter: (Voice Overlap)

Chief Justice Earl Warren: -- contractor who -- a major contractor who comes in to do a big job, he brings --

Mr. Chapman L. Sanford: That is correct.

Chief Justice Earl Warren: -- his own equipment in and uses them there, is that --

Mr. Chapman L. Sanford: Uses his own equipment.

Chief Justice Earl Warren: Yes.

Justice Felix Frankfurter: Now -- alright, take that situation --

Mr. Chapman L. Sanford: Well sir --

Justice Felix Frankfurter: Take that -- take the same thing in Louisiana, a local contractor using the same equipment, what kind of a tax do you impose on him for the use of that equipment?

Mr. Chapman L. Sanford: A local contractor Your Honor who has -- doing exactly the same thing.

In other words, he is building it in Louisiana from component parts and using it in Louisiana, would have paid a tax upon the tangible personal property at the time it came in to -- made up the component parts based upon their fair market value at the time of taxation when it first --

Justice Felix Frankfurter: But not for the --

Mr. Chapman L. Sanford: -- came in for use.

Justice Felix Frankfurter: -- total -- not for the total aggregate.

Mr. Chapman L. Sanford: In that case Your Honor, he would not have had to pay on the total aggregate.

Justice Felix Frankfurter: Alright.

So here, you're imposing an exemption on the aggregate when you do not do it to the comparable aggregate in Louisiana, is that right?

Mr. Chapman L. Sanford: If it -- if it's a comparable Your Honor that's correct.

But I don't believe that the situations are comparable.

Justice Felix Frankfurter: You mean it can't exist, can't be like that?

Mr. Chapman L. Sanford: No, because -- no, a man can't do that in Louisiana in the – in Halliburton's case, they're producing the item for their use.

They bring it in to Louisiana.

We are equating -- what they bring in to Louisiana is not -- these nuts and bolts or anything like that.

We are looking at it as of the time that they bring it in.

Justice Felix Frankfurter: Well, I'm assuming -- please correct me or change me, I'm assuming that Halliburton has a place in Louisiana.

They transfer, they listen to your apparent call and come over, put up their shop there, build all these things and do the exactly the same thing with reference to the oil well.

What would they be taxed on, on what they purchased of the component parts of the total, is that right?

Mr. Chapman L. Sanford: That's correct.

Justice Felix Frankfurter: And that's a very different thing from what the aggregate is worth?

Mr. Chapman L. Sanford: That's correct.

Justice Felix Frankfurter: Alright.

And your -- then the -- the arithmetic is not an equation.

Mr. Chapman L. Sanford: The arithmetic, no sir it's not an equation.

Justice Felix Frankfurter: Alright.

Mr. Chapman L. Sanford: The mo --

Justice Felix Frankfurter: That's all I've been trying to get into my head and now understand your justifications.

The justification that you've given, I do understand --

Mr. Chapman L. Sanford: Right, well --

Justice Felix Frankfurter: -- namely that if they were residents in Louisiana then they'd be subject to some other tax as I understand that.

That's a very different defense and to say that the sales tax equals the use tax.

Mr. Chapman L. Sanford: Well --

Justice William J. Brennan: Well, this isn't your justification, is it?

Or let me --

Mr. Chapman L. Sanford: No.

Justice William J. Brennan: Maybe there's another one.

I have --

Mr. Chapman L. Sanford: The difference Your Honor is in the point of time.

Justice William J. Brennan: Well may I ask, obviously your sales tax does not reach labor and overhead, does it?

I mean labor and overhead as such are not subject to a sales tax.

Mr. Chapman L. Sanford: Exactly our point.

Justice William J. Brennan: What's -- subject to a sales tax is tangible property in the case of a sale when bought by a Louisianan from outside the State, he pays a -- on the sales price and the purchase price to him which ever the -- but he has to pay for it.

That is the measurements of the value against -- it was the 2% as applied.

Mr. Chapman L. Sanford: Yes, sir.

Justice William J. Brennan: Is that it?

Mr. Chapman L. Sanford: That's correct.

Justice William J. Brennan: Now, then when he walks into the State with something already assembled which he's going to use there.

I understood your justification is you're applying the 2% for the reasonable value of that property when he brings it into the state and uses it there.

And you say that's the same thing and there's no discrimination that even though the dollar result are maybe as Justice Frankfurter has said different.

Mr. Chapman L. Sanford: That's correct.

Justice William J. Brennan: Is that it?

Mr. Chapman L. Sanford: The dollar result --

Justice William J. Brennan: The justification is not that the local fellow has to pay other taxes.

Mr. Chapman L. Sanford: No, that's not my justification, what I'm --

Justice Felix Frankfurter: Well, you've made that point which is a very important one in the --

Mr. Chapman L. Sanford: Well --

Justice Felix Frankfurter: -- (Inaudible) of law.

Mr. Chapman L. Sanford: Well -- right.

I do make it if it -- if these are two comparables, I want to make it.

Justice Felix Frankfurter: But they are very different things and you make it because they're not comparable.

And one of the points about the Commerce Clause is that I have a right to go outside the State and get certain advantages by coming across the borders.

That's the point about the Commerce Clause.

Mr. Chapman L. Sanford: I -- I make that argument if they are not comparable of course Your Honor the point I -- I do make to point also that the point of time -- actually its almost an accident of time and place, the -- of which (Voice Overlap) --

Justice Felix Frankfurter: Well but the accident is that it's across state line, that's the accident.

Mr. Chapman L. Sanford: I think not Your Honor because the sales tax applies to items which are coming in interstate commerce in the exactly --

Justice Felix Frankfurter: But you're not taxing --

Mr. Chapman L. Sanford: -- the same way.

Justice Felix Frankfurter: -- the same items.

Justice Tom C. Clark: Suppose a resident of Louisiana brought this machine in, brought it in, (Inaudible) the same as Halliburton?

Mr. Chapman L. Sanford: The same as Halliburton Your Honor.

If a Louisiana resident produced the thing outside and brought it in, as a matter if he produced it inside, took it to Texas and then brought it back in, you'd probably have to pay the tax.

Justice William J. Brennan: Well, as a matter fact the -- what is Halliburton's status.

I don't know if its qualified (Voice Overlap) --

Mr. Chapman L. Sanford: He's qualified to do that.

Justice William J. Brennan: -- of a resident for purposes of your -- for your --

Mr. Chapman L. Sanford: Oh, he's qualified to do business and he's doing business in fact.

Justice William J. Brennan: But that isn't your justification either.

You're not justifying that is a domesticated corporation?

Mr. Chapman L. Sanford: No sir.

Justice William J. Brennan: Then what's the relevance of that?

Chief Justice Earl Warren: Mr. Sanford may I ask you this, another simple transaction.

We have thousands of youngsters who make radios these days, and they buy all the parts separately and put them together and get a good radio.

Now, let's say that a youngster does that and makes one that -- makes a radio that is exactly comparable to one that is sold in the stores of Louisiana.

I'm talking about the Louisiana boy in Louisiana.

Now, he -- if he buys one of those in the store, he has to pay just as you have charged Halliburton here, for everything that goes into the cost price of that radio, does he not?

Mr. Chapman L. Sanford: That's correct.

Chief Justice Earl Warren: And including the profit that the man at the store makes.

Now, on the other hand, if he goes to a hardware store and buys each one of those parts separately and puts them together himself and makes his own radio, then he has to pay the 2% tax on every item that goes into that thing.

But that you -- it is no longer -- it isn't the sales tax when he puts them together so you don't charge him for that.

Mr. Chapman L. Sanford: That's correct.

He would have already paid that.

Chief Justice Earl Warren: He would already have paid for everything that was sold to him.

Mr. Chapman L. Sanford: That's right, whether he's from Louisiana or anywhere else.

Chief Justice Earl Warren: Yes, whether he's in interstate commerce or intrastate commerce, not a Louisiana citizen or otherwise.

Mr. Chapman L. Sanford: That's correct.

Chief Justice Earl Warren: That is correct.

Mr. Chapman L. Sanford: That is correct and that's our point that we view --

Justice Felix Frankfurter: Yes but isn't -- but that -- that isn't the end of the matter, because you're saying in one case you taxed for sales of an organic of a completed thing.

And the other thing you taxed for sales of item with which I can do what I pleased by -- could destroy them, to eat them if they're edible, to leave them by around loops, or make a contraption of my own, isn't that true?

Mr. Chapman L. Sanford: In each case, we tax sale.

Justice Felix Frankfurter: So you're comparing two different things?

Mr. Chapman L. Sanford: No, we're taxing the sales Your Honor.

Justice Felix Frankfurter: Yes, but you're taxing the sales of different things.

Mr. Chapman L. Sanford: Well, certainly --

Justice Felix Frankfurter: One thing to compare the sale of a radio or of a TV set is another thing to compare the sale of the individual item with which on -- had liberty to do what I damn please.

But that isn't -- you don't -- therefore, you say you compare what one fellow buys, item one, two, three with the imposition of a tax on what is made out of one, two, three, and they're very different things.

Justice Hugo L. Black: May I ask you this?

While in this case, Halliburton has no competitor, manufactures these themselves and then go to Louisiana.

The rule as before us would apply to many such transactions where there are half a dozen different manufacturers.

Suppose Halliburton had bought this machine from someone else in the State of Oklahoma and had brought it in to use it, what would've the tax been then?

Mr. Chapman L. Sanford: Identical.

Justice Hugo L. Black: Identical.

Now, there are many inferences, are they not in which just such things occurred?

Mr. Chapman L. Sanford: Yes sir.

Justice Hugo L. Black: How would you figure out this case and how is -- how -- under that rule, how would you figure that out?

Have you got to look back to see how many items went in it that you would've charged the sales tax on and --

Mr. Chapman L. Sanford: Under the rule they're asking for --

Justice Hugo L. Black: Louisiana has to look in to it and suppose it's an automobile.

This is partly an automobile (Inaudible).

Mr. Chapman L. Sanford: Under the rule --

Justice Felix Frankfurter: (Inaudible)

Mr. Chapman L. Sanford: -- they're asking for, that's what we'd have to do.

Justice Hugo L. Black: You would have to find out what kind of tax would've been paid in Oklahoma and Louisiana on the various items had they been purchased there, and then equates your tax arithmetically to the fraction, the part of opinions with aggregate of those items?

Mr. Chapman L. Sanford: That's what they're asking for Your Honor and that's we would have to do it if that was the rule.

Justice Hugo L. Black: I don't see -- there may be another way and I was asking you that because I was trying to find --

Mr. Chapman L. Sanford: I know of no other way.

Justice Tom C. Clark: Do you have a payroll tax --

Mr. Chapman L. Sanford: Oh, of which --

Justice Tom C. Clark: Tax on payrolls?

Mr. Chapman L. Sanford: We do.

Justice Tom C. Clark: Of labor in -- you do?

Mr. Chapman L. Sanford: We do.

Justice Tom C. Clark: Well, if it's made in Louisiana, (Inaudible) tax on it, put it on this labor.

Mr. Chapman L. Sanford: By --

Justice Tom C. Clark: (Inaudible) company purchased it for their own use, so Louisiana people do pay a tax on this labor, don't they?

Mr. Chapman L. Sanford: Well not -- it's not a comparable tax Your Honor.

It's not --

Justice Hugo L. Black: Sales tax should be comparable, wouldn't it, on their machines, on the completed machines?

Mr. Chapman L. Sanford: Yes.

What we are saying that all items where the --

Justice Hugo L. Black: What would be the tax on a completed machine has it been made and manufactured in Louisiana and sold it?

Mr. Chapman L. Sanford: Identical to the tax that we're charging.

What we are saying Justice Frankfurter is that all items whether they are fruits, (Inaudible) apples or oranges or hardware, whatever it is at the moment of sale enjoy the same position as far as the tax is concerned that at the moment of sale or at the moment of use, they're in the same position.

And actually, we can take the rule maybe and run away back as far as the piece of steel is concerned then maybe no tax would be due at all if we're going to take out the labor and overhead.

We get it back into -- we'd get it back into the ground and then we don't tax anything but movables or tangible personal property and maybe on a piece of steel, no tax would be used at all.

As of the moment of taxation Your Honor, all items enjoy the same position and we look at it what it is at that time and it doesn't affect interstate commerce at first because it applies both ways.

Justice Potter Stewart: Mr. Sanford, Mr. Justice Black asked you, what would be the case if Halliburton had purchased this equipment in Oklahoma from another manufacturer and you say the tax would be identical, is that quite right?

I thought the tax then would be measured by the price, the purchase price?

Mr. Chapman L. Sanford: Well, not -- of course, no.

It's a fair market value as of the time it comes into Louisiana.

And our Supreme Court clarified that for us and said that the cost price meant fair market value as of the moment it came in and if it had incurred any depreciation --

Justice Potter Stewart: (Voice Overlap) purchased and brought in, thought it was new, it would be the purchase price.

Mr. Chapman L. Sanford: It will be easy to determine that way, yes sir.

Justice Potter Stewart: That would be measured by the price.

Mr. Chapman L. Sanford: Right.

Justice Potter Stewart: So you wouldn't go in all of these formulas you've gone into with -- in this case because price would also include a profit, isn't it?

Mr. Chapman L. Sanford: Right, in that case but --

Justice Potter Stewart: In those cases at least that you've -- so wouldn't be the same, would it?

Mr. Chapman L. Sanford: It would be the same Your Honor.

Oh no, actually the measure Your Honor, what I'm trying to say is that the rule is that if the fair market value when it gets to Louisiana, that's the -- that's what we're going to put it on.

Now, we may well say administratively, well the fair market value is what you paid for because that's what you are willing to pay for it.

Justice Potter Stewart: Had it been purchased from another manufacturer in Oklahoma.

That was Mr. Justice Black's hypothetical case

Mr. Chapman L. Sanford: Right, but if they could.

Justice Potter Stewart: Here, it was manufactured by Halliburton in Oklahoma, wasn't it?

In this case --

Mr. Chapman L. Sanford: Right.

Justice Potter Stewart: -- before us?

Mr. Chapman L. Sanford: Well, the tax in -- as far as what we could administrate to show the tax would be a little less in Halliburton's case then if they had purchased it.

Justice Tom C. Clark: You just take the price of evidence of fair market value?

Mr. Chapman L. Sanford: Yes sir.

Chief Justice Earl Warren: May I ask this Mr. Sanford?

If two persons were bringing in the same commodity, one of them bought from a manufacturer and the other one bought from -- at a bankruptcy sale let us say, and the prices were very considerably different and they came to the border at the same time, would you make a difference between the value of those two things if they are identical for tax purposes or would --

Mr. Chapman L. Sanford: I don't know what we are going to do when that problem comes up --

Chief Justice Earl Warren: I see.

Mr. Chapman L. Sanford: -- Your Honor.

And if it does comes up, I don't know what our Court is going to do, but they have said that is fair market value --

Justice Tom C. Clark: Yes.

Mr. Chapman L. Sanford: So when we start increasing the value on top of someone's actual cost, I don't know what the results will be.

Chief Justice Earl Warren: Yes.

But the only the reason I asked you was this, as to whether you treat what a man paid for it out of the state as the -- as conclusive on the value in Louisiana or whether you yourself judged the value of it and only use cost as evidence of value.

Mr. Chapman L. Sanford: I don't think we treat it as conclusive Your Honor but in making our audits, we pick up that price.

And if they come in and show a lesser value, well then we probably go along with them.

If they show a depreciation, we'll reduce the amount that we picked up.

Chief Justice Earl Warren: Yes.

Mr. Chapman L. Sanford: I -- we have never tried to increase the value or say that it is worth more than the paid for it.

Chief Justice Earl Warren: You never have done that?

Mr. Chapman L. Sanford: Never have done that and of course, we're not set up --

Justice William J. Brennan: Mr. Sanford, suppose you had -- in this case, Halliburton brought in two identical pieces of equipment, one to sell, the other to use.

They're identical pieces, say made -- put together in Oklahoma by Halliburton.

It sells one of them, to measure the tax I gather from what you have said the case of the machine sold, it'd be 2% of the sales price, is that right?

Mr. Chapman L. Sanford: That's correct.

Justice William J. Brennan: Now, on the use of the other identical piece, would the measure of value of the piece used be the sales price of the other piece?

Mr. Chapman L. Sanford: I think that then we would have evidence which we don't have now because there are no sales.We would have evidence of what the fair market value is.

Justice Felix Frankfurter: But the same fellow who bought -- the rival assuming, there was a rival, maybe this was too hypothetical a case, to a sale the statute on, of the facts on.

But the rival in Louisiana, if he does everything that Halliburton did in Oklahoma would not be subjected to the kind of tax, leave out on account, all of the taxes in Louisiana.

He would not be subjected to the kind of tax namely the value of the parts put together treated as a whole as though it was sold, is that right?

I -- I'm not drawing an inference on it.

I just want to know whether that's right, is that right?

Mr. Chapman L. Sanford: No, sir.

Justice Felix Frankfurter: Alright now, suppose it's --

Mr. Chapman L. Sanford: The tax -- I don't know if you're asking again the same question about the ultimate mathematical amount of the tax.

Justice Felix Frankfurter: That's what I'm talking about.

Mr. Chapman L. Sanford: If you're talking about the ultimate mathematical amount of the tax, Your Honor you are right, it is right that it is the difference --

Justice Felix Frankfurter: And therefore -- however, I'm -- that therefore, I'm not saying that this has answered the problem, but the fact therefore is that the advantage of having an allegedly free market between states would put that fellow who does all this in part in Oklahoma, and then comes into Louisiana at a disadvantage because he did it in Oklahoma instead of in Louisiana.

I'm not saying that that's constitutionally bad.

I'm just saying that that's the result, isn't it?

Mr. Chapman L. Sanford: Without regard to any other taxes.

Justice Felix Frankfurter: Without regard to any other taxes.

Mr. Chapman L. Sanford: And unlike Halliburton, he operates only in Louisiana, he do --he isn't --

Justice Felix Frankfurter: That's right.

Mr. Chapman L. Sanford: And without regard to any of the facts, it seems that he would have an advantage due to his own ingenuity of location.

Justice Felix Frankfurter: Well, he's being a citizen of United States you mean, which the whole point is that you got to -- suppose it be a free market that he's entitled.

The question is whether he's entitled to that event, what you call accident (Inaudible)--

Mr. Chapman L. Sanford: Well I -- yes.

I don't know that it's necessarily Your Honor.

Justice Felix Frankfurter: I'm not reaching a legal conclusion.

I'm trying to understand the problem.

Mr. Chapman L. Sanford: That is the problem.

Justice Felix Frankfurter: And you say very properly --

Mr. Chapman L. Sanford: That is the problem.

Justice Felix Frankfurter: You --

Mr. Chapman L. Sanford: That is the problem.

Justice Felix Frankfurter: You say very properly without regard to any other taxes because I'm very receptive to that line of consideration which had been sought to be brushed aside.

It's very important in these matters.

Namely, that you've got to consider a tax in relation to the whole tax structure.

Mr. Chapman L. Sanford: That's correct.

That is the problem.

It does --

Justice Felix Frankfurter: Alright.

Mr. Chapman L. Sanford: -- the existence of what might be called a loophole.

Justice Felix Frankfurter: I just wanted to isolate the problem --

Mr. Chapman L. Sanford: Exact discrimination.

Justice Felix Frankfurter: -- by not getting confused with a lot of words.

Justice John M. Harlan: Does Halliburton which is qualified as I understand it, domesticated in Louisiana, does it pay other taxes, excess taxes?

Mr. Chapman L. Sanford: Oh, yes sir.

Justice John M. Harlan: It pays -- this is the only tax he pays?

Mr. Chapman L. Sanford: Not at all.

All my point is that -- for example, it does pay income tax.

I suppose that its profit structure is such that --

Justice John M. Harlan: He pays a full (Inaudible) of taxes that are applicable to a domesticated corporation.

Mr. Chapman L. Sanford: Right.

And in (Voice Overlap) --

Justice John M. Harlan: But you're different --

Mr. Chapman L. Sanford: It's a tax --

Justice John M. Harlan: -- from the taxes that they're paid by a domestic corporation.

Mr. Chapman L. Sanford: That's correct.

Justice John M. Harlan: So when you say in relation to the whole tax structure, you -- I don't see where that -- and that is your argument, I assume.

Mr. Chapman L. Sanford: Oh well.

Well Your Honor --

Justice John M. Harlan: And you're not relying on that tax.

Mr. Chapman L. Sanford: I'm -- well, what I'm saying is that I don't believe that the existence of the so-called loophole, it is discriminatory.

But if it is --

Justice John M. Harlan: Really the nub of the issue between you two gentlemen is what you compare.

You say that the out-of-state use tax to be compared dealt with the sales tax would be applicable if the out-of-state user actually sells, that are doing what Halliburton did.

And they -- your opponent says that that isn't a fair comparison in order to be compared with the intrastate use taxpayer who is circumstanced as Halliburton is with reference to the non-sale of the use of this material.

Isn't that the difference between you?

Mr. Chapman L. Sanford: Well, there's that -- is that a difference.

I will -- do want to comment on the other -- of the tax structure.

They pay a certain rate of tax based upon apportionment formulas, their income tax and their franchise tax.

They pay their use tax depending upon what they do have there.

If they had more there, of course they would have a greater tax, property taxes or ad valorem taxes.

If they had more there, they would pay use taxes on tools and machinery.

If they had wages there and employees there and a factory there, they would have their -- the apportionment factor for income and to franchise tax purposes would be greater also.

Justice John M. Harlan: Yes.

Mr. Chapman L. Sanford: So there would be a difference.

I don't want to say that they certainly do pay taxes now but it's apportioned according to what they do there.

Justice John M. Harlan: Right.

Justice Felix Frankfurter: Do you deal with this question because I thought you've yield at a little (Inaudible) until your last remarks with Justice Harlan's suggestion.

This is the question of the tax structure is irrelevant because you're authorized to do business in Louisiana.

That is, it's irrelevant only for two basis of taxation between a domestic domiciliary, domiciliary corporation and an authorized corporation are the same which I take is they're not, are they?

The taxes that a domestic corporation pays and that of a corporation or upon corporation pays, they're not the same, are they?

Mr. Chapman L. Sanford: No, they're not.

Justice Felix Frankfurter: Would be very strange, Louisiana would be quite alone if it did.

Mr. Chapman L. Sanford: Right, that -- they're not.

Justice Potter Stewart: Well, none of that, as a matter of that, as in this case, either by stipulation or evidence or anything else, is it?

Mr. Chapman L. Sanford: That's correct.

Justice Potter Stewart: None of it?

Mr. Chapman L. Sanford: None of it.

Justice Felix Frankfurter: Well, when considerations like that had been used in tax cases, I'm not sure that they'd been introduced in evidence.

Mr. Chapman L. Sanford: No, I think --

Justice Felix Frankfurter: A case comes here from a State and therefore we can take judicial notice to all the tax laws of the State.

Mr. Chapman L. Sanford: I would think so.

Actually when the stipulation was made, I'm certain that our argument was going to be made simply as to the fact of them all.

And that -- which is actually the reason that we conceded the meaning of those words in the stipulation, they would not be taxed upon labor and shop overhead.

I don't know what it means.

Justice Felix Frankfurter: What case have been in this Court have shed light on the problem as we now have it isolated or narrowed, whichever is -- (Inaudible) suppose in the questions put Justice Harlan recently and what I put to you finally.

What case had shed most light on that problem namely, when comparing exactly the same economic incident, the same economic transaction, there is a difference in treatment by the state of the out-of-stator and the in-stator.

Mr. Chapman L. Sanford: Oh, I'm --

Justice Felix Frankfurter: What case had shed most light on that problem?

Mr. Chapman L. Sanford: You're talking about those that consider the entire tax structure in a tax case.

Justice Felix Frankfurter: Well, I don't mean that.

But I mean the point that you're making --

Mr. Chapman L. Sanford: The point that I'm making.

Justice Felix Frankfurter: Yes.

The point you're making, what you finally have stated is that the State of Louisiana has a right, has power under the constitution to frustrate, to deprive if you will, to deny the fellow who comes in from the outside who have had the benefit of having been in the outside.

What's the -- what decision of this Court shed any light on that subject?

Mr. Chapman L. Sanford: Well Your Honor I haven't gone into that, but I'm not making that point and I don't say that -- I don't say that that's the case here at all.

Justice Felix Frankfurter: You're not making that point but that's going to introduce (Inaudible).

Justice Potter Stewart: Well, (Inaudible).

If this has nothing to do with whether the person is resident or non-resident of the State, does it --

Justice Felix Frankfurter: It does not.

Justice Potter Stewart: -- this applies --

Justice Felix Frankfurter: Everything (Voice Overlap) --

Justice Potter Stewart: -- this question would arise if a citizen and resident of Louisiana who had live there all his life whether he'd be an individual person or corporation, went to Oklahoma and manufactured some for his own use --

Mr. Chapman L. Sanford: That's correct.

Justice Potter Stewart: -- has nothing to do with residence in or outside the State, does it?

Mr. Chapman L. Sanford: That is correct Your Honor.

Justice Felix Frankfurter: But if the re -- if the fellow does that from Louisiana and goes to Oklahoma and picks up all these pieces and then builds a thing of his own, what would he be taxed on in Louisiana?

Mr. Chapman L. Sanford: Whatever he brings in just like anyone else who might bring in something whether it's a Louisiana man that goes in and gets it -- brings it in or whether it's a foreigner that goes there and get the --

Justice Felix Frankfurter: That is what you're taxing Halliburton on.

You're taxing him on the value of his aggregated equipment.

And the Louisianan, would you tax the Louisianan on its use of that?

Mr. Chapman L. Sanford: Yes sir, we would tax a Louis --

Justice Felix Frankfurter: According to the sales value if he's ought to sell it?

Mr. Chapman L. Sanford: If he brought that same item in, he would be taxed identically to them.

Justice William J. Brennan: And this is applicable to me, traveling and being in Louisiana a day, staying on a hotel room or it's applicable to somebody who'd lived there for 75 years, we're not talking residency or domicile has nothing to do with the problem.

Mr. Chapman L. Sanford: Has absolutely nothing.

Justice Felix Frankfurter: But if it was all made in Louisiana, it'd be different.

Justice Tom C. Clark: A different transaction too.

Mr. Chapman L. Sanford: That's what we're saying as of what -- the tax is -- the tax they do pay Your Honor is on the things that they used in it's an identical tax.

Justice Felix Frankfurter: I'm not talking about the traveling of the person whether he's resident of Louisiana or not, but where the transaction takes place?

Mr. Chapman L. Sanford: The transaction that -- the transaction that is taxed Your Honor is the first use and if the tax is identical for everyone including the local manufacturer on its first use of tangible personal property, he may eventually end up with something that is either greater value or lesser value.

But this is at a point after the tax has been imposed.

I would like to say just a few words.

Now, I see my time is nearly up.

About the casual sale aspect and that's the airplane that was purchased in another State at a casual sale and when it was brought in, we imposed the used tax as of the moment it became part of massive property.

Of course the same argument made before applies here because it's -- the purpose is to see that everyone, all properties had been the subject of a 2% tax.

What makes -- the way we handle this, I think and which is unlike Alabama, constitution of the fact that we give a credit, we offer a credit.

If they tax -- if that product has ever been to subject of a 2% similar tax, or any portion of it anywhere else, we give the credit.

Alabama does not give the credit.

The cases except for that point that they don't give a credit, the case is directly against us, the Alabama case, the Bay Towing case is directly against this.

But the -- in our case, if they show the credit bearing the exact same position as anyone who would have purchased a similar item in the State --

Justice Potter Stewart: The administrative practice of these other states is against you too?

Mr. Chapman L. Sanford: Correct.

Justice Potter Stewart: Ohio and California?

Mr. Chapman L. Sanford: It is.

But actually California offers no credit, Ohio offers no credit, North Dakota does.

Justice Potter Stewart: Offer credit.

Mr. Chapman L. Sanford: He gave -- he said that -- the stipulation says that, "If this had been purchased in Louisiana, there would've been no tax on it."

We agree on casual sale in Louisiana would not have borne a 2% tax to Halliburton.

But the person that sold at a casual sale in Louisiana would have already paid the 2% tax on it, and it would have borne 2% tax.

And he gave the situation I think of selling, he's tried to be here and -- as compared to selling it back home, well, it would've already borne a 2% tax.

I would -- had a credit and I don't have to pay a use tax on his time when I take it back to Louisiana with me, because I'm entitled to the credit.

But we feel that the credit does equate to tax burden on all competitive people who may be using tangible personal property.

If it has borne 2% tax and they bring it in, we could give a credit.

In this case, it did never bear it so we imposed a 2% tax to be on equal basis with every other taxpayer that has an airplane like that.

Justice Hugo L. Black: Do you have a general personal property tax in Louisiana (Inaudible)?

Justice Potter Stewart: No sir, for businesses only, pay it personal property tax, but there's no personal -- there's ad valorem tax of course on real estate, but not on loophole property.

And that concludes our argument.

Chief Justice Earl Warren: Mr. Taylor.

Rebuttal of Benjamin B. Taylor, Jr.

Mr. Benjamin B. Taylor, Jr.: Mr. Chief Justice, member of the Court.

One of the Justices has asked the direct question with whom this Halliburton contract in the use of this equipment.

A contract with oil well operators, they will bring this thing up to an oil well and do whatever needs to be done to an oil well to make it work better.

Justice Felix Frankfurter: They'll lend it to other people, wouldn't they?

Mr. Benjamin B. Taylor, Jr.: No sir.

They've -- they contract to perform a service, just as a plumber comes out to your house to fix it.

Justice Felix Frankfurter: Well if --

Mr. Benjamin B. Taylor, Jr.: Let's take the case of the small boy who bought parts for his radio.

Let us suppose that he was given $50 for a Christmas present and he went downtown and bought $50 worth of parts.

And when he got home with them, he found he couldn't put them together, so he knew a radio mechanic down the street who could and he persuaded his father to advance him $100.

And so he went down, he had that radio put together in Louisiana, and he ended up with a cost price of $150.

He would have paid a sales tax on that $50 worth of parts and he would not have paid a sales tax on the $100 worth of labor and shop overhead, the cost of putting these loose parts together and to assemble the product.

Now, suppose for the sake of argument the neighboring State, Mississippi had no sales tax.

And suppose that he did not know in Louisiana a skilled mechanic who could put this particular type of radio together.

And so he put the parts in the back of his father's station wagon and he drove across the Mississippi line to Biloxi where the skilled mechanic lived.

And there, he spent his $100.

So now, he has $150 invested in a completive radio.

And so they put it in the station wagon and they drive back to Louisiana and at the state line, the collector flags him down.

And they do just that by keeping tab on railroad -- railway express receipts.

But they flagged him down at the state line and they say, "There, you have a radio and what is your cost price?"

Our cost price is $50 per parts and $100 for labor and overhead.

So the collector says, "Fine, give me 2% of the cost price of $150."

"Oh, but I've already paid it on $50 worth when I bought the parts."

"Fine, we'll give you credit for that but we want 2% of this labor and overhead because it was expanded in Mississippi."

And the man being acquainted with the Halliburton problem says, "Not so."

Had we employed the people to put it together in Louisiana, had there been no element of multi- activity and no element of interstate movement of goods, there would've been no tax on the labor and overhead.

Surely, multi-state activity and interstate movement of goods should not in and of themselves generate a tax where none existed without that element of interstate movement.

Suppose Halliburton in the days before Texas had a sales tax, they've only have one for a few months, suppose they brought their factories and their production shops and nestled them right up against the Louisiana line, put the whitewash fence along the line separating their factory from Louisiana.

And suppose just on the other side of that whitewash fence, a competitor setup an identical factory which made the same thing.

Now, Halliburton makes them on the Texas side and imports them into Louisiana for use.

The competitor makes them on the Louisiana side and uses them in Louisiana.

The labor and shop overhead would not be taxed to the one who operated in Louisiana that is stipulated.

The labor and shop overhead would be taxed under the collector's position here today.

That one additional inch or actually the crossing of that imaginary state line there, the infinite point of space that is the line would generate the additional tax in view of what the collector has to say.

Now, the reason that there's nothing in the record here with reference to -- no arguments had ever been made before in any court, with reference to these other taxes is because as this Court be judicially notice, here, Halliburton had in this brief tax years, $2,500,000 worth of this type of equipment in the State.

Halliburton is a major operator in the field of oil well servicing.

It has a massive operation in Louisiana.

And as this Court may judicially notice, there would be many thousands of dollars, hundred to thousands of dollars in one form or another derived over the general taxes which would apply to such a massively operating domesticated board corporation.

Chief Justice Earl Warren: Should that make any difference in the decision of this case?

Mr. Benjamin B. Taylor, Jr.: I don't think there's any difference there at all Your Honor.

The argument is -- and I would say that apparently opposing counsel doesn't think so either since that argument has never been advanced at any part of this case until he was mentioned in this Court today.

In our anxiety to get to each point of the case, we have failed to point out what appears to be the collector's major argument in his brief that what appears to be the major ground for the Louisiana Supreme Court decision.

How do the Louisiana authorities try to justify their flagrant tax discrimination?

Shaken down to its tests, we submit that it is simply this and we quote from the collector's brief, "The tax," he says, "Is not upon interstate commerce or is it upon the privilege of use after commerce is at an end."

This is his primary contention.

He repeats it in the last paragraph of his brief, "The use tax is imposed for one reason only because the property had become a part of the massive property in the State", and the Louisiana Supreme Court has adopted that as its major premise.

He -- its concluding language.

We conclude that the Louisiana use tax does not infringe upon interstate commerce because the tax matter had definitely come vested in the State.

And they quote the Silas – from the Silas Mason case this language, "The tax is not upon the operation of interstate commerce but upon the privilege of use after commerce is an end."

But they do not quote Mr. Justice Cardozo's concluding language which is as follows, "With reference to good move in interstate commerce, they may be subjected", he says, "Once they are at rest to a non-discriminatory tax upon use of the majority."

Of course, Mr. Justice Cardozo's words that commerce is at an end cannot be used to justify discriminatory taxation.

Now, this is not discrimination against interstate commerce because commerce is at an end.

We respectfully submit that this is arbitrary and discriminatory classification for tax purposes, separate discriminatory classification, separate and heavier tax treatment being base solely upon the history of there having been an interstate movement of goods, no matter how thin the argument is sliced.

Louisiana is still demanding in both faces of this case tax money which it would not demand if there were no element of interstate commerce.

Eliminate interstate commerce, both face result no taxation.

Add interstate commerce, both faces result taxation.

If the collector argues and this appears to be his number two position and we quote that the tax operates alike upon all persons and property similarly situated.

Let us examine this "tax classification."

Classification A of the collector, to be taxed for heavily those who operate in interstate commerce.

Classification B, to be taxed likely or not at all those who operate wholly within the State of Louisiana.

As classification A taxpayers, interstate operators are all similarly situated says the collector and they're all taxed heavily.

Classification B taxpayers, intrastate operators were all similarly situated and they're all taxed more lightly.

Now, it would seem to us that where the test for taxation is the existence or non-existence of interstate commerce and the Interstate Commerce Clause as the governing principle, we therefore would base Halliburton's conclusion of unconstitutionality upon the Interstate Commerce Clause.

Nevertheless, quite aside from the Interstate Commerce Clause, we submit that this is the case of growth discrimination of arbitrary classification which is forbidden by the equal protection of the Laws Clause and the Due Process Clause.

Assume arguendo that Halliburton was -- were an intrastate operator sitting side-by-side in Louisiana with another intrastate operator, a competitor.

And assume that Halliburton was being taxed three times as much as that competitor or more accurately being taxed upon a pace which is tax exempt to that competitor.

We submit that there's simply no excuse in law for such discrimination even if there were no element of interstate commerce and a fortiori, the tax discrimination cannot be valid where the -- it's only test for taxation is the presence and absence of interstate commerce.

It seems to us that both the facts and the law are simple and clear cut on both phases of this case.

First phase, labor and overhead.

Facts, Halliburton manufactured outside of Louisiana and Oklahoma.

Second, Halliburton transported in the channels of interstate commerce and used in Louisiana.

Law, movement of goods in interstate commerce ought not in and of itself generated 2% tax on labor and shop overhead which would not had been liberty of no movement to interstate commerce.

Second phase, isolated sales, facts, Halliburton purchased outside Louisiana, in New York and Texas.

Two, Halliburton transported in the channels of interstate commerce.

Three, Halliburton used in Louisiana.

Law, interstate movement of goods by Halliburton and movement of goods in interstate commerce by Halliburton ought not in and of itself generated 2% tax on the transaction, 2% of cost price of the casual sale which would not have existed at all if there were no element of interstate commerce.

Now, Louisiana could avoid tax discrimination here in one of two ways.

Louisiana could add to the tax base of the intrastate business so as to equalize it with the interstate tax -- the interstate state business' taxation.

For example, labor and overhead could be taxed where it performed in Louisiana as well as where it performed outside Louisiana or the isolated sales exemption could be limited -- could be eliminated as to intrastate sales thus equalize it.

Louisiana will not follow this path.

The alternative path is the only one left as we see it.

Louisiana can and we submit must eliminate these items from the tax base of the interstate operator as well as the intrastate operator.

Either method would abolish the inequity, the discrimination which complaint is here has made.

But what Louisiana cannot constitutionally do is to include in the tax base of the multi-state operator, the intrastate business concerned, a substantial element while excluding that same substantial element from the tax base of intrastate business whose activities are exactly the same except for the presence or absence of interstate commerce.

Is there any another question that any member of the Court would like to ask as we close?

We respectfully submit that the decision below should be reversed.

Print this transcript Transcript: 

Argument of Benjamin B. Taylor, Jr.

Chief Justice Earl Warren: -- versus James S. Reily, Collector of Revenue, State of Louisiana.

The orders -- the other orders of the court are cert -- have been certified by the Chief Justice and filed with the clerk and will not be orally announced.

Now, Mr. Taylor.

Mr. Benjamin B. Taylor, Jr.: Mr. Chief Justice Warren, members of the Court, may it please the Court.

This is the second argument of one of the cases which was argued before eight-judge court last term.

This is a suit for refund on tax moneys paid under protest to the State of Louisiana where the field of state taxation of interstate commerce, constitutional law, the Interstate Commerce Clause forbids tax discrimination by states against interstate commerce.

The equal protection of the laws clause or the Due Process Clause forbids arbitrary tax discrimination by states even if there is no element of interstate commerce.

Classifications for tax purposes may not be held by the arbiter.

The Louisiana Supreme Court has held that Louisiana may discriminate against the multistate or interstate business and thus give a direct commercial advantage to local business.

It held specifically that Louisiana may place an excise tax upon the interstate business of Halliburton which is three times as heavy as the tax burden would be -- upon the same identical, and I emphasize the word “identical” operation if it were purely local and intra-Louisiana.

The Halliburton Company of Duncan, Oklahoma has appealed from the Louisiana Supreme Court urging the invalidity of the discriminatory tax and claiming the constitutional protection of three clauses, interstate commerce, equal protection and due process.

This Court noted probable jurisdiction.

The tax in question is the Louisiana use tax, a part of the sales and use tax law of the State of Louisiana.

The tax rate is 2%.

The case of the sales tax, the intrastate tax, the rate is 2% of the sales price of intrastate sales.

In the case of the use tax, the interstate tax, the rate is 2% of cost price to the purchaser who imports, that is who purchases outside Louisiana and imports through channels of interstate commerce into Louisiana for its own use.

Halliburton's complaint is not of the tax rate which is 2% in both cases but Halliburton does complain of discrimination in the determination of the tax basis to which the 2% rate is applied.

Specifically, Halliburton complains that the tax base is larger, three times larger in the case of the intrastate use tax which falls upon Halliburton and the tax base would be in the case of the intrastate sales tax which would fall upon a local intrastate competitor of Halliburton in an identical -- in an identical intrastate business operation.

Justice John M. Harlan: Is that the result of the way the statute is written or is the result of the way the stat -- the statute (Voice Overlap) --

Mr. Benjamin B. Taylor, Jr.: Oh, I think there's a split of opinion on that, sir.

I think that the Collector of Revenue thinks -- says that's the way the statute is written.

We disagree with him on that.

We think that this problem is with his interpretation of the statute.

Justice John M. Harlan: Your court construed it as being required by the statute.

Mr. Benjamin B. Taylor, Jr.: That's correct, sir.

We disagree with -- we don't think the statute needed to be construed that way but in any event it has been construed that way so we are faced with that as a jurisprudence of Louisiana unless this Court reverses this Court -- the Supreme Court of Louisiana.

What are the facts of this case?

Justice Potter Stewart: We can't reverse the Supreme Court of Louisiana on its construction of the Louisiana statute.

We're -- we take -- we had to take that (Voice Overlap) --

Mr. Benjamin B. Taylor, Jr.: But you can.

Justice Potter Stewart: -- it starts with the statute just as though that's what the statute explicitly and unambiguously said.

Mr. Benjamin B. Taylor, Jr.: What we're asking this Court to say that the statute has construed --

Justice Potter Stewart: Yes.

Mr. Benjamin B. Taylor, Jr.: -- violates the Constitution of United States.

Justice Potter Stewart: Yes.

Mr. Benjamin B. Taylor, Jr.: The facts of this case, Halliburton is a manufacturer, please let me emphasize that because opposing counsel is going to try to lose sight of that fact.

Halliburton is manufacturer.

It is a manufacturer which uses its own work product.

And economists would classify it as a manufacturer-user or producer consumer.

Halliburton is not engaged in buying or selling its product so as to give rise to the intrastate sales tax.

Note particularly that Halliburton does not buy this finished product anywhere but Halliburton is a manufacturer which manufactures a product for its own use.

Halliburton does not buy this finished product anywhere.

Halliburton imports into Louisiana certain equipment which it has manufactured in its own production shops in Oklahoma and it uses this equipment in Louisiana.

Thus, Halliburton --

Justice Arthur J. Goldberg: You said that Halliburton is a manufacturer, I'm looking at the picture of the equipment in the record.

Mr. Benjamin B. Taylor, Jr.: Yes, sir.

Justice Arthur J. Goldberg: It doesn't manufacture the truck itself, does it?

Mr. Benjamin B. Taylor, Jr.: No, sir.

The -- on page 16 of the record, we found it quite helped to visualize this equipment, opposite page 16 of the record, you'll see a piece of this equipment.

The cost of materials that goes into that which of course would include the truck chassis sir, is roughly one-third of total cost, the cost of labor and overhead in assembling this rather intricate piece of scientific equipment which is used to service oil wells.

And the labor and overhead element is $60,000.

And here Your Honor, you put your finger on the essence of the case that the labor and overhead is two-thirds of cost and the cost of materials is one-third of costs.

Specifically, if Halliburton had its shops in Louisiana, there would be a sales tax on the cost of materials but there would be no sales tax or use tax on the labor and shop overhead expanded in Louisiana.

One of these things comes up to the Louisiana state line, the Collector hails it down and he says, “I've just audited your books Halliburton, and I see that on your books, this thing stands at $90,000.

$30,000 of that is materials, $60,000 is that of labor and overhead, you're going to bring that thing into Louisiana and use it, you've got to pay me 2% of $90,000”.

“Not so”, says Halliburton.

“We'll pay you 2% of the $30,000 cost of materials and we won't pay you anything more”.

And we say that because if we had our production shops in Louisiana, if we were a manufacturer in Louisiana instead of manufacturer in Oklahoma, we would pay a sales tax on materials, there will be no tax on labor and overhead.

Intrastate labor and overhead is tax free.

We respectfully submit to the State of Louisiana and to this Court that multistate or intrastate labor and overhead should be equally tax free.

If in the recipe, no new ingredient is added to the recipe except the element of interstate commerce, we say that that should not affect the ultimate tax result and that is the situation here no matter how thin it is sliced.

Multistate activity and interstate movement of goods cannot constitutionally generate a tax which would not exist in the absence of that.

If Halliburton had it's -- suppose Halliburton had a shop right on the Louisiana-Texas line and suppose -- let's put Loui -- Halliburton just outside the Louisiana-Texas line over in Texas.

Let's put a competitive Halliburton right jump against the line on the -- in the Louisiana side.

Let's put a one inch wide whitewash fence line between them by the ones that the competitor -- to producers in Louisiana and uses itself, there will be a 2% tax on the $30,000 materials element.

There would be no Louisiana tax on the labor and shop overhead but every unit produce one inch further away from the Louisiana state capital across that line in Texas assuming that Texas had no such statutes to such costs.

For every one of those units that make -- moves that extra inch of difference which makes it an interstate transaction, Louisiana says, “We're going to tax that labor and overhead”.

Now, the tax here sir, is in a ratio.

Discrimination is in a ratio of three to one.

But that's a happenstance.

We're talking about tax versus no tax.

Add the element of interstate commerce, taxation of labor and overhead.

Eliminate that element of tax -- of interstate movement, no taxation of labor and overhead.

Mr. Chief Justice Warren at the earlier argument of this case suggested the hypothet of the do-it-yourself radio parts kit.

Our 14-year-old boy, I send him to a camp in South Louisiana, going through New Orleans, he saved up $50.

He buys a do-it-yourself kit of radio parts.

He takes it to camp.

He finds that the job of sticking it together is too complex and having some extra money from some source, he hires the more sophisticated boy in the next tent to put it together and he pays him a $150 for labor to put that together.

He brings it home.

He hasn't been out of the state.

He's got a finished radio, $50 in materials, $100 in labor, $150 total cost.

There has been a Louisiana sales tax on the materials, no sales or use tax on the labor and overhead.

Change the facts.

Inject one new ingredient only enabling interstate commerce that they sent him camp on the Maryland coast.

On a route through Washington, he goes to (Inaudible) and he buys the same kit radio parts.

He takes them to the camp on the Maryland coast.

Again, it's too complex a job for him.

He can't put them together.

Again, there's a more clever boy in the next tent.

That $100 he had to put the radio kit or parts together.

Now, he's got a $150 radio, the same radio, the same $50 in materials, the same $100 in labor and overhead.

Through channels of interstate commerce, he takes that finished radio back to the State of Louisiana.

The State of Louisiana would put a tax on a $150.

It would include the labor and overhead because of the interstate movement whereas it excluded it where there was no interstate movement.

The Sabine River is a small stream running between Louisiana and Texas.

Suppose that I go to Sears Roebuck in New Orleans.

For $500 I buy a kit of radio -- boat parts.

I'm going to be build a 16-foot boat.

$500 I buy the kit or parts, do-it-yourself.

I take them to the Sabine River and on a sandbank on the Louisiana side, I'll hire a workman for $1000 to stick those parts together.

I've got a finished boat, cost me a $150 -- $1500, I beg your pardon, $500 materials, $1000 labor and overhead.

There's been a Louisiana tax on the materials cost only, none on the labor and overhead.

But suppose there's no sandbank on the Louisiana side and suppose I take those same parts, $500 worth of materials to the Texas side of this narrow stream.

There, I hire a workman for $1000 to stick them together for me.

When he finishes, I've got a $1500 boat, $500 materials, $1000 labor and overhead.

Now, note the instance that taxation is going to fall on my next step.

What is my next step?

I float it across the stream and upon the floating of that thing across the imperceptible line which is the boundary line of the states, the Collector of Louisiana would fix the instance of a tax.

He would tax $1500 there instead of $500 because there has been interstate movement.

Justice Hugo L. Black: If you are right, does it mean -- I'm trying to find out to what the -- does it mean that the states cannot apply their use tax to any equipment brought in the state purchased from an out of the state manufacturer or distributor insofar as the value is -- represents labor in another state?

Mr. Benjamin B. Taylor, Jr.: No, sir.

For this reason and Your Honor has put his finger on the most confusing aspect of this case and upon the contention upon which the Louisiana Supreme Court stumble in its reasoning.

If you have -- if Halliburton were a multistate operator which purchased this equipment outside the state and then moved into Louisiana, its tax would be exactly to that same -- the same as it would be if it were an intrastate purchaser who purchased the equipment and then went ahead and used it.

In each case, where there has been a purchase with or without the element of interstate commerce end, the tax would fall on the purchase price or cost price which would include three elements, A -- (1) rather, materials, (2) labor and overhead and (3), the cost -- the profit of the producer or distributor.

Now, let's -- Halliburton purchased in Oklahoma and brought it into Louisiana, the tax would be on the purchase price.

If it purchased it in Louisiana, the tax would be on the purchase price, there would be no differential.

On the other hand, and this is what I -- if I can't lay anything else to rest here today, I want to lay to address the proposition that you -- that they have collected -- I want to assert clearly that the Collector is trying to compare two different economic operations.

Guess what he says?

Isn't the use tax, and this is going be his argument, the use tax here if levied upon Halliburton's total cost including labor and overhead merely the same as and no greater than the sales tax that would fall upon an intrastate, intra-Louisiana operator who buys such equipment in Louisiana.

And the answer to that question necessarily is yes.

But we respectfully submit that it is totally beside the point.

Justice Arthur J. Goldberg: Mr. Taylor, you are drawing a distinction between a purchaser who is not a manufacturer and a manufacturer?

Mr. Benjamin B. Taylor, Jr.: That is right.

Justice Arthur J. Goldberg: And I take it, your argument is that in each case, you would seek equality of tax treatment.

Mr. Benjamin B. Taylor, Jr.: That's correct, sir.

Justice Arthur J. Goldberg: And there has not been equality here.

Mr. Benjamin B. Taylor, Jr.: It stipulated that we don't have it, sir.

The stipulation specifically and I quote it --

Justice Hugo L. Black: What effect would this have on General Motors and Ford's sales of automobiles?

Mr. Benjamin B. Taylor, Jr.: It would have no effect upon sales of automobiles.

It would apply in a particular case which might rarely occur if General Motors brought to Louisiana as General Motors and used as General Motors a company car.

In other words, this applies --

Justice Hugo L. Black: Are you then --

Mr. Benjamin B. Taylor, Jr.: -- only to a manufacturer using its own product after having brought it across state line.

Justice Hugo L. Black: They do that to some extent, do they?

Mr. Benjamin B. Taylor, Jr.: That's right, sir.

And this would -- the argument there would be that if General Motors will say as a Ford automobile has got a $1000 of materials and $2000 of labor over -- and overhead.

And if they brought that into Louisiana, we assert that Louisiana should not tax General Motors any more than if it had its manufacturing shops in Louisiana.

Halliburton -- the Collector makes a really incredible argument which I want to quote to this Court.

Suppose I go back just a little if Your Honor would permit me to.

It's stipulated in this case that an intrastate production shop owner, that is Halliburton if it had its shops in Louisiana would not be either sales tax or use tax on this labor and overhead which is two-thirds of its cost.

Such an intrastate manufacturer use them would be a sales tax of 2% on the materials it buys, cost element number one, but co -- but the intrastate manufacturer-user would not be a 2% tax sales or use on purely intrastate labor and overhead which we've called cost element number two which is consumed in assembling materials into a usable finished product.

It is stipulated.

Louisiana does not levy a sales tax or use tax on intrastate labor and overhead.

And we quote that stipulation which appears in the record at page 26, “If Halliburton had operated at a location within the State of Louisiana, there would've been no Louisiana sales tax or use tax due upon the labor and overhead, and as -- our position is simply this, that the additional element of interstate commerce cannot constitutionally generate a new burden for Halliburton which would not exist in the absence of interstate commerce.

Now, it's a fact that Halliburton has already paid to Louisiana a 2% use tax on the cost of materials, element number one.

In other words, Halliburton has already paid to the State of Louisiana all of the tax that a competing intrastate manufacturer-user would be required to pay and that's stipulated.

The remaining question is whether Louisiana may require Halliburton to pay a 2% use tax on the labor and overhead cost when incurred in Oklahoma which you would not be required to pay if Louisiana had incurred, if Halliburton had incurred the same labor and overhead cost in Louisiana.

We stated, may Louisiana include in the tax base of the multistate or interstate manufacturer-user a substantial element of cost, two-thirds or about a million and half dollars in this case while at the same time Louisiana excludes that same substantial element of cost, two-thirds from the tax base of the competing intrastate manufacturer-user.

Justice John M. Harlan: How long has this statute in the books?

Mr. Benjamin B. Taylor, Jr.: All of my materials are, sir.

Now, this issue has been under discussion in one form or another in my memory for at least 15 years.

This is the first time it's coming to litigation.

Actually, --

Justice Hugo L. Black: (Voice Overlap)

Mr. Benjamin B. Taylor, Jr.: -- if you put -- if you press me sir, I believe that the use tax came into effect in the mid-30s but I would be uncertain to that and I don't think there's many substantial changes --

Justice John M. Harlan: This is the first time the statute has been construed on this point?

Mr. Benjamin B. Taylor, Jr.: That is correct, sir.

Actually, you -- my interest to the court is to why this issue hasn't reached this Court before.

And the answer is that every time the issues caught up anywhere has been resolved in favor of the taxpayer.

In Oklahoma and California, the statute has been construed.

These cases in our briefs had been construed to eliminate from the tax base of the use tax, any element which was eliminated from the tax base of the interstate -- intrastate sales tax.

Justice William J. Brennan: But in the case -- the statute has been enforced during the mid-30s?

Mr. Benjamin B. Taylor, Jr.: That's right, sir.

That --

Justice William J. Brennan: Taxes have been paid?

Mr. Benjamin B. Taylor, Jr.: My experience frankly is limited to this case which has been in argument since about 1955.

We refuse to pay it.

I really don't know how --

Justice William J. Brennan: I understand.

Mr. Benjamin B. Taylor, Jr.: I don't have knowledge of -- perhaps they -- the Collector may have been yielding on the point before perhaps the tax base --

Justice William J. Brennan: You pay it prior to 1955?

Mr. Benjamin B. Taylor, Jr.: Sir?

Justice William J. Brennan: Did you pay it prior to 1955?

Mr. Benjamin B. Taylor, Jr.: I think we paid it in 1956, sir.

They -- one of the fascinating things -- have I answered your question sir?

Justice William J. Brennan: Well, I said prior, but 1956 is over.

Mr. Benjamin B. Taylor, Jr.: I believe that's correct.

Justice Hugo L. Black: What about the other states?

Mr. Benjamin B. Taylor, Jr.: The issue has arisen once before in Alabama.

This case has another facet which we -- we've been talking about the labor and overhead phase.

Now, let me slip over very briefly into another phase --

Justice Hugo L. Black: Well, I meant to ask you, does -- how many states have the same kind of tax law, use tax law that Louisiana has here?

Mr. Benjamin B. Taylor, Jr.: 37 states have sales and use taxes and they account for about 20% of the combined revenue of all states.

Now, it's my observation that this -- that the tax drafters of these statutes have tended to copy from each other.

Now, how many of them are exactly like this, I can't say.

Justice Hugo L. Black: Are there any of them that have held on your side on this question?

Mr. Benjamin B. Taylor, Jr.: Every time the issue has ever arisen --

Justice Hugo L. Black: I meant --

Mr. Benjamin B. Taylor, Jr.: -- it has been held the way we are contending for.

Justice Hugo L. Black: How many?

Is it in your brief?

Mr. Benjamin B. Taylor, Jr.: Yes, sir but I can give it to you.

I have it right here.

I can -- Alabama is the only state where it's been litigated.

In Ohio and California and then Oklahoma, it's been administrated -- administratively determined.

Oklahoma had a -- in three states including Ohio and I can't --

Justice Hugo L. Black: It's a fair statement, isn't it, that you've raised a noble point in this law where it's been enforced the other way generally throughout the country?

Mr. Benjamin B. Taylor, Jr.: No, sir.

With much respect --

Justice Hugo L. Black: It's not.

Mr. Benjamin B. Taylor, Jr.: -- I think to the contrary.

In North Dakota, Ohio, and California, it's been administratively ruled.

This appears in our -- page 46 of our brief that wherever the labor -- that the labor and shop overhead must be excluded from the use tax since it is excluded from the sales tax.

And they point to the constitutional necessity for so holding.

Now, the State of Alabama specifically had these questions squarely in litigation and the Supreme Court of Alabama held exactly almost in words of one syllable as we are contending that the court should hold today.

The -- in Alabama, the issue dealt with what we called the isolated sales exemption in the use tax.

If I were to sell this necktie in Louisiana, since I am not regularly engaged in the business of selling neckties, there is no sales tax on that transaction.

There is an exemption of isolated sales.

But the Collector of Revenue says that there is no -- and this is the Alabama case, I'm coming to your point but I think its much better illustrated with this if you please, sir.

They had barges in the Alabama case instead of a necktie but I think this gets the point more rapidly.

If I were to sell this to opposing counsel, if I had sold it to him in Louisiana, and then he brought it up here and taking it back to Louisiana, there would be no sales tax on the transaction because the operative facts, my sale of it to him took place within Louisiana's barge.

But if, I should initiate that transaction right here today, if I should take it off and sell it to him for a dollar, and if he took that thing back into Louisiana so that the sale took place here, and the use took place in Louisiana, then Louisiana would demand a 2% use tax on that because they say that there is no such thing as an isolated use.

Specifically, in the Halliburton case, Halliburton bought an airplane in New York from a newspaper company that wasn't in the business of selling such things.

They had bought some used equipment from a company in Texas that was not regularly engaged in the business of selling such equipment and they brought them into Louisiana.

And Louisiana said, “Because you've moved these things in interstate commerce, because you went outside the Louisiana marketplace to get these things instead of getting in Louisiana, we want you to pay a 2% use tax”.

With reference to the airplane, if they -- that airplane have been flown by the vendor, not by Halliburton into the Morrison Airport in New Orleans and if there, it had been purchased by Halliburton, then there would've been no Louisiana sales tax on the transaction.

But if Halliburton goes outside the state and gets that piece of equipment and then flies it in, Louisiana would place a tax upon it.

Justice Arthur J. Goldberg: Mr. Taylor, in answer to Justice Black's question, you're dealing with something else other than what he inquired about?

Aren't you dealing with the isolated sale aspect of your case?

What about the overhead aspect?

Are there states on the overhead, the labor and overhead aspect that had taken a position contrary to the position you're asserting here?

Mr. Benjamin B. Taylor, Jr.: No, sir.

I know of no holding anywhere nor any published writing anywhere that supports the Louisiana Collector except one article in the Louisiana Law Review by one Robert Roland who if the Court should find that, I call this attention that Mr. Robert Roland was the attorney, was the Louisiana Collector himself at the time that this thing was done.

In another article in the Louisiana Law Review where the Law Review is taking the point different from Mr. Roland, we are supporting it.

The only written word in print that supports us is Mr. Roland's proposition.

This issue and one thing I must have the Court here is an incredible argument of the Louisiana Collector in his motion to dismiss.

It's a fascination to see what he says.Louisiana Collector says that for Halliburton this is and we quote from the motion to dismiss at page 13, “Not an interstate problem, not an interstate commerce problem but a problem in management in locating its operations so as to reduce its cost of operations”.

The taxpayer says, the Louisiana Collector may reduce his tax burden by manufacturing equipment within Louisiana for his own use.

Collector's argument is incredible.

He contends that Louisiana's position that non -- it is nondiscriminatory simultaneously he argues it by a good corporate management, Halliburton could avoid this Louisiana tax by ceasing its interstate movement and becoming a purely intrastate operator having its entire operation within Louisiana's borders.

We've discussed this point in our brief at some length under the heading, a problem of management, save Louisiana taxes by manufacturing in Louisiana.

Justice William J. Brennan: May I ask --

Justice Arthur J. Goldberg: May I ask you this question?

Mr. Benjamin B. Taylor, Jr.: Yes, sir.

Justice Arthur J. Goldberg: In -- to take this General Motors illustration that have been put to you, suppose that Chevrolet that General Motors manufactures assembles and sends them to Louisiana, Chevrolet sell it for $3000.

If it is sold, that Chevrolet is sold in Louisiana, a sales tax would have to be paid on $3000 --

Mr. Benjamin B. Taylor, Jr.: Correct.

Justice Arthur J. Goldberg: Is that correct?

Mr. Benjamin B. Taylor, Jr.: That's correct.

Justice Arthur J. Goldberg: If the Chevrolet is assembled in Louisiana, if the General Motors has an assembly plant and if the materials that go into that Chevrolet cost $1500 and the labor is $1500.

As I understand you, you would say that under Louisiana law it would be taxable under the sales tax law for $1500.

Mr. Benjamin B. Taylor, Jr.: That's correct.

Justice Arthur J. Goldberg: Is that correct?

Mr. Benjamin B. Taylor, Jr.: That is true.

Justice Arthur J. Goldberg: And you are then arguing that if the Chevrolet is assembled in Detroit and $1500 are materials and $1500 are labor, and the Chevrolet is shipped into Louisiana for use by Chevrolet --

Mr. Benjamin B. Taylor, Jr.: Right.

Justice Arthur J. Goldberg: -- as company car --

Mr. Benjamin B. Taylor, Jr.: That's correct.

Justice Arthur J. Goldberg: Is that what you mentioned --

Mr. Benjamin B. Taylor, Jr.: That's correct.

Justice Arthur J. Goldberg: -- that it ought to be only taxed for $1500 as a company car?

Mr. Benjamin B. Taylor, Jr.: That's correct.

Justice Arthur J. Goldberg: Is that correct?

Mr. Benjamin B. Taylor, Jr.: Because otherwise there's a 2% tax inducement by the State of Louisiana to coax the manufacturer into the State of Louisiana and that's what we think that the federal constitution forbids.

This issue --

Justice William J. Brennan: May I ask --

Mr. Benjamin B. Taylor, Jr.: Yes, sir.

Justice William J. Brennan: -- just this, did you say earlier there is an Oklahoma tax comparable to this?

Mr. Benjamin B. Taylor, Jr.: Yes, sir.

Justice William J. Brennan: Did you pay it?

Mr. Benjamin B. Taylor, Jr.: Oh, oh no, sir.

There was no tax paid in the State of Oklahoma because there's an exception of goods produced by export.

Justice William J. Brennan: I see.

But if it had -- as I understand it, if Oklahoma had taxed you, you would've been entitled to a credit --

Mr. Benjamin B. Taylor, Jr.: That's correct.

Justice William J. Brennan: -- for the amount of the Oklahoma tax, did you not?

Mr. Benjamin B. Taylor, Jr.: That's correct, sir.

But note that if there'd been only a tax on the materials in Oklahoma because there was no intra-Oklahoma labor and overhead tax, then when they came to the State of Louisiana, they could claim a credit only for the --

Justice William J. Brennan: Yes.

Mr. Benjamin B. Taylor, Jr.: -- materials tax that had been paid and Louisiana again would flag them down and say, “Give us the tax on this labor and overhead because you've got them multistate operation”.

The use tax falls only on goods that had been moved interstate commerce.

Henneford versus Silas Mason, 1936 before this Court, the use tax was attacked on the grounds that it would be offensive to the interstate Commerce Clause because it only falls upon situations where there's been an interstate movement.

The use tax is upheld in that case despite the fact that the use tax only falls upon transactions involving in interstate commerce because in a case then at bar, Silas Mason, the use tax of the State of Washington did not exceed the sales tax of the same state but was merely complimentary to and precisely equal to the sales tax of the same state therefore there was no discrimination, hence no unconstitutionality.

And Mr. Justice Cardozo made it plain that that was his rationale with this language.

Equality, he says, is a theme that runs through all sections of the Washington statute.

When the account is made up, to stretch him afar is subject to no greater burdens than the dweller within the gates.

In each situation, the burden of the use tax is balanced by an equal burden of the sales tax where the sale is strictly lawful.

And Mr. Justice Cardozo concluded a nondiscriminatory tax, a nondiscriminatory tax has never been regarded as imposing a direct burden upon the interstate commerce.

Now, we respectfully submit that implicit in the Silas Mason decision and corrected so, is the proposition that whenever the use tax, the interstate tax does exceed the intrastate tax in an identical situation, not comparing a manufacturer-user, with the purchaser at retail.

The purchaser at retail, intrastate versus purchaser at retail intrastate, manufacturer-user interstate versus manufacturer-user intrastate, we respectfully submit that the additional ingredient of interstate commerce cannot constitutionally create a tax where it non-existed in its absence.

Thank you.

Chief Justice Earl Warren: Mr. Sanford.

Argument of Chapman L. Sanford

Mr. Chapman L. Sanford: May it please the Court.

I think that we can show that Louisiana hasn't done quite as bear as Mr. Taylor would have the quote I believe, I think that the theme of our law is equality and it is certainly is a definite attempt to equalize all the interest.

And of course he says that we attempt to compare incomparables and we say that he has.

In this case, it's true that a manufacturer-user in Louisiana would pay a tax only on the items that they themselves either purchased in Louisiana, they'd pay the 2% sales tax.

This is what they use in Louisiana.

If they purchased it outside of Louisiana, in this case, knots and bolts and sheet metal and the chassis and maybe a motor, what they bring in to Louisiana and that the item that they used as of the time they bring it in and becomes part of the mass of property that is out of commerce, then that is what is taxed.

And that is the moment of taxation.

In this case, they bring in a completed item and that is what they use in Louisiana.

And a manufacturer-user such as Halliburton in Louisiana whose manufacturing trucks for use all over the world would pay the tax on all of the knots and bolts, on all of the sheet metal, on all of the chassis and of all the motors no matter where it went.

And if management found that they could afford to pay the tax on all of the items that they did use, and produced in Louisiana more cheaply rather than pay them the item that they did bring to Louisiana, well then, certainly, it is a management problem of location.

It isn't even a loophole in taxation.

Because they're being taxed as of the taxable moment on what they do use in Louisiana and we do not tax overhead.

And we do not tax labor.

We tax value or cost.

We tax the cost in the sales tax.

We tax the cost in the use tax.

It's true that the labor and shop overhead in this case formed the part of the value or cost of the item.

But Louisiana is not taxing labor and shop overhead.

We are taxing what has been brought into Louisiana and what is being used in Louisiana.

And as of that time, which is the only time that Louisiana gets jurisdiction incidentally, at least the first moment that they get jurisdiction.

It is of that time we look and say, “What do you have here?

And what does this cost to you?”

Justice John M. Harlan: Suppose (Inaudible) to the sales tax in your -- that fell on the seller or is it --

Mr. Chapman L. Sanford: It falls on the purchaser.

In other words --

Justice John M. Harlan: The purch --

Mr. Chapman L. Sanford: -- the one that's going to use it just as it does in the use tax on the one that is going to use it.

The moment of taxation in both cases is identical is a moment that a user or consumer takes the property and is ready for using it.

And as of that moment, that's the moment of taxation in both cases, the rate is the same and the base is the same because it is the cost of the item as of that moment.

Now, in this case, -- well, really what they're complaining about almost is the -- is that it's a cheaper tax when you prove that you eat home than it is when you eat out.

But the situation is a diff -- different because in this case when you eat home, you buy a large quantity of food and you pay tax on all of it.

It's true that per meal maybe the tax is different.

But if you come through Louisiana and you stop and you buy meal at the restaurant, you buy your steak and you pay $4, you pay 2% on it.

If you ate that same steak at home, well, it will be whatever the cost was in the store but you're going to -- you pay on all of your groceries no matter where you eat them, no matter -- whether you eat it or not.

In other words, if they're spoiled, you would still have paid your tax at the moment that you purchased it.

Justice Hugo L. Black: Do you raise your own steak?

Mr. Chapman L. Sanford: Sir?

Justice Hugo L. Black: Do you raise your own steak that some of it comes from outside or has a little labor put on it?

Mr. Chapman L. Sanford: Well, some of it, most of it comes from outside.

We raise it alive, Your Honor.

Justice Arthur J. Goldberg: Counsel, take this -- the Chevrolet illustration I used earlier, if an automobile is manufactured in Louisiana and sold Chevrolet, where is the -- at what point does the sales tax attached?

Mr. Chapman L. Sanford: When it is sold to the ultimate consumer or the user.

Justice Arthur J. Goldberg: From the distributor to the ultimate consumer?

Mr. Chapman L. Sanford: Yes, sir.

Justice Arthur J. Goldberg: Not at the manufacturer level --

Mr. Chapman L. Sanford: No, sir.

Justice Arthur J. Goldberg: -- to the distributor?

Mr. Chapman L. Sanford: No, sir.

Justice Arthur J. Goldberg: Is that correct?

Mr. Chapman L. Sanford: That's correct and the interest here or more than just the interest that which points up to this.

Justice Hugo L. Black: Suppose Halliburton were to sell this machine as you propose the use tax, would you have to pay a sales tax?

Mr. Chapman L. Sanford: We have to collect the sales the tax.

Justice Hugo L. Black: You will collect --

Mr. Chapman L. Sanford: If you're in the business of selling them.

Justice Hugo L. Black: But suppose he decided to sell this one later.

Mr. Chapman L. Sanford: Well, we have an exemption, Your Honor, for a casual sale, that would probably (Voice Overlap) --

Justice Hugo L. Black: That should be a casual sale?

Mr. Chapman L. Sanford: And there would be no tax.

Chief Justice Earl Warren: Mr. Sanford, would you please take the hypothetical case of Mr. Taylor about the boats that are built, one of them on one side of the little narrow stream that divides the two states and the other built just on the other side of the stream and in one instance as he says, your tax is only on the materials but if he ships the boat -- the other boat across the river then it becomes liable for both the value of the materials plus the cost of labor and overhead.

Would you give your theory please as to why that is not -- would not be a burden on interstate commerce.

Mr. Chapman L. Sanford: In his particular hypothet Your Honor, I believe that he had -- he said he hired someone to do the work, in which case that is a taxable service in Louisiana or make anymore like this particular one, if he does the work --

Chief Justice Earl Warren: Well, what was that, I didn't quite understand that?

Mr. Chapman L. Sanford: In his hypothet, he said that on the Louisiana side, he had someone do the work for him.

Chief Justice Earl Warren: Yes.

Mr. Chapman L. Sanford: And this is a taxable service.

Chief Justice Earl Warren: He had it on both sides?

Did someone do it --

Mr. Chapman L. Sanford: Well, and this is a tax ---- on both sides?

Mr. Chapman L. Sanford: This would be a taxable service in Louisiana and it would bear the tax.

Chief Justice Earl Warren: What tax would it bear?

Would it bear the same kind of tax as this?

Mr. Chapman L. Sanford: A 2% tax.

Chief Justice Earl Warren: On all --

Mr. Chapman L. Sanford: On the service.

Chief Justice Earl Warren: (Voice Overlap)

Mr. Chapman L. Sanford: Yes, sir.

As a part of the same sec --

Chief Justice Earl Warren: What kind of a --

Mr. Chapman L. Sanford: -- part of the same section that levies that tax.

Chief Justice Earl Warren: He got to pay a road tax?

Mr. Chapman L. Sanford: No.

It's akin to the sales tax.

In fact, it's contained in the same section that contains the sales tax.

And it says there's a -- is hereby levied a tax upon all sales or services as here in defining the state at the rate of 2% on the amounts paid or charged for said service.

Indeed, this particular service has to do with manufacture.

And it is a 2% tax on that.

Chief Justice Earl Warren: Well then, if this material that we're discussing in this particular case were manufactured in Louisiana, would he have been obliged?

Would Halliburton have been obliged to pay a 2% tax on all the material -- on all the labor and overhead?

Mr. Chapman L. Sanford: Not under the particular facts of his case.

They would not pay -- that overhead would not be included in the tax base.

Chief Justice Earl Warren: With the labor?

Mr. Chapman L. Sanford: No, sir.

Chief Justice Earl Warren: Well, then --

Mr. Chapman L. Sanford: Well, there's a --

Chief Justice Earl Warren: Would it (Voice Overlap) --

Mr. Chapman L. Sanford: There's a difference in his hypothet and the facts of his case about the boat.

Chief Justice Earl Warren: Well, how about -- what's the difference between the boat in this case?

Mr. Chapman L. Sanford: In the boat, he has someone else to the -- do the work.

In this case, he does it himself.

Chief Justice Earl Warren: Well, he employs -- he employs --

Mr. Chapman L. Sanford: Well --

Chief Justice Earl Warren: -- people to do it for him.

He pays for the labor.

And that is only --

Mr. Chapman L. Sanford: Well, I --

Chief Justice Earl Warren: -- whether he employs labor to build this big truck.

Mr. Chapman L. Sanford: He -- if he were himself doing it with his own labor (Voice Overlap) --

Chief Justice Earl Warren: No, I'm talking about that.

I'm talking about where he employs labor and employs people for overhead.

Would he have -- would there be any such tax (Voice Overlap) --

Mr. Chapman L. Sanford: There would be no tax on the labor or the overhead.

Chief Justice Earl Warren: Well --

Mr. Chapman L. Sanford: Nor would it being -- nor would it be included in the value of the item.

As a matter of fact, what it amounts to as I point out is taking the component parts of say your meal and fixing it yourself, you pay tax on what you buy at the time you buy it or what you bring in and use at the time that you do that.

Now, if he should ruin for example what he has brought in, his tax would not be refunded in any way.

If he is doing it in Louisiana, he pays on all of that he's using.

And in this case, I'm sure that he doesn't use 10% of his trucks in Louisiana, if he would pay on all the material which he used in Louisiana, the situations are different.

Chief Justice Earl Warren: But Mr. Sanford, let's get back to the -- to his boat, the boat situation.

If it was built on the Louisiana side, there would be no tax on either the labor or materials, would there?

Mr. Chapman L. Sanford: No, sir.

Chief Justice Earl Warren: Now, if he shoved his boat across the river as he suggested, would your Collector charge him or assess him a tax on his labor and materials, I mean on his labor and overhead?

Mr. Chapman L. Sanford: Well, no sir.

We do not charge tax on the labor and overhead but we do take the value of the item, and in this case, it is -- since there is no market for this, for this particular item, we compute the cost by including labor and overhead.

Chief Justice Earl Warren: Why don't you do it in Louisiana?

Mr. Chapman L. Sanford: Because of the time that the tax is imposed, the taxable moment, this is -- the ultimate item is not what they -- when -- is not what they first take.

At the taxable moment, what they first take is the component parts.

And he doesn't bring income.

He wants to be taxed as if what he brought in were component parts but he does not.

He brings in a highly refined piece of machinery.

And that's the reason we don't.

Oh, it is not -- we're not taxing the truck.

At the time of the use, it is not a truck.

At the time of the use, what he has is sheet metal and the component parts.

And that is what we tax at the time of the use.

Now, he ends up, it's true.

He would end up with a highly refined piece of machinery but it -- after the tax has already been imposed upon the component parts and in this case, under the stipulation in this case, we would not tax that, at least at -- the component -- the ultimate item in this particular case would of course be -- have a far greater value than the component parts.

Chief Justice Earl Warren: Well, just so, would it, if it was manufactured in Louisiana?

Mr. Chapman L. Sanford: That's correct.

Chief Justice Earl Warren: Oh, isn't it a burden on interstate commerce if you put the incidents of -- if you have two articles, one in Louisiana and one in another state that are constructed in exactly the same way and in the same kind of commerce if you put the incidents of the tax at one point.

Mr. Chapman L. Sanford: No, sir, because --

Chief Justice Earl Warren: Louisiana and another point, if it comes from the outside, and you burden -- and you make the tax excess if it's the outside or wouldn't that be a burden on commerce?

Mr. Chapman L. Sanford: No, sir.

Not in the -- in this particular case, this -- if it -- if you want to term it a discrimination or difference in taxation, it doesn't bear solely on interstate commerce.

It bears against everyone who's paid a sales tax on a like item.

Or was -- everyone who had purchased either within the state or without the state and paid the sales tax would be in the same if it's a disadvantage, would be at the same disadvantage to the person who creates his own ultimate product.

The -- if there's a discrimination, it's not just against interstate commerce, it's against the instate purchaser as well as the out-of-state purchaser or the out of -- or the one who brings in the item in its completed state.

Chief Justice Earl Warren: But he is willing to pay you the tax -- pay you the tax on the materials in exactly the way that you tax your own people?

Mr. Chapman L. Sanford: Well, that's not exactly the way we tax our own people.

My point is that the situations are not identical.

We would tax our own people on perhaps 10 times as much component parts as used in the thing.

We would tax them on all of these component parts.

If he would be willing to pay the 2% tax on every component part used in his factory in Duncan, Oklahoma which is the way we were taxing if he were in Louisiana, we'd be happy to accept it.

But he doesn't want to be taxed.

Chief Justice Earl Warren: You mean -- you mean if he makes a hundred trucks in (Voice Overlap) --

Mr. Chapman L. Sanford: And uses one in Louisiana --

Chief Justice Earl Warren: (Voice Overlap) and used one in Louisiana, he ought to pay a tax on all the materials --

Mr. Chapman L. Sanford: No, I'm not saying that, Your Honor.

Chief Justice Earl Warren: -- to a hundred?

Mr. Chapman L. Sanford: No.

I'm saying that to -- that's what he would do if he were in Louisiana.

If his operation were in Louisiana and he made a hundred trucks and 99 of them went out of state, he would've paid tax on all of the component parts.

That's why the situations aren't identical.

He would've paid on all of the component parts not just the one in Louisiana, every one.

Justice Tom C. Clark: (Voice Overlap) what comes in to the state as it comes in.

Mr. Chapman L. Sanford: As it comes in and this --

Justice Tom C. Clark: One of the items comes in various little parts?

Mr. Chapman L. Sanford: Right.

Justice Tom C. Clark: And everybody paid a tax on that.

And if the instate man rode in this truck, he'd have to pay a tax too, wouldn't he --

Mr. Chapman L. Sanford: That's correct.

Justice Tom C. Clark: -- the finished truck?

Mr. Chapman L. Sanford: Right.

And in this case, if he had his plant instead of in Duncan, in Louisiana, in Shreveport for example, he would pay on every little item he brought in for all the trucks no matter where it would go.

Chief Justice Earl Warren: So would he, in this situation, would he not if he brought all the trucks in to Louisiana?

Mr. Chapman L. Sanford: Yes, if he did.

Justice Byron R. White: Mr. Sanford, (Inaudible) on the privilege of using?

Mr. Chapman L. Sanford: It's a privilege, yes, sir.

Justice Byron R. White: (Inaudible) privilege of using is on materials that have been acquired outside the state --

Mr. Chapman L. Sanford: Right.

Justice Byron R. White: -- he would no -- in -- you have no state tax upon the privilege of using materials, generally?

Mr. Chapman L. Sanford: Well --

Justice Byron R. White: Do you?

Mr. Chapman L. Sanford: I'm not sure Your Honor.

The stipulation in this case, that's what the stipulation is to that effect that we're going.

Actually, I think perhaps, may be the tax is applicable.

Justice Byron R. White: Well, the sales tax is not a tax on the privilege of using?

Mr. Chapman L. Sanford: No, sir.

But it -- the use tax seems to apply to everything.

But as far as the stipulation is concerned, what you say is correct.

There's no -- there is no tax on the use of stuff.

But most of this stuff, most of the stuff in Louisiana, like most of the stuff in all states has come in on interstate commerce even if it's sold at retail.

In other words, there is the -- its -- interstate commerce is incidental to this situation because all automobiles, all trucks -- there's no manufacturer of that kind in Louisiana.

Is -- all come in and the man that sells these things at retail, he has to charge 2% of the sales price and the interest to be equated are all of the interest.

In this situation, which Mr. Taylor is talking about, is not identical because he would pay on all those trucks that he manufactured whether he used it in Australia and he has them there.

In South America and he has them there.

He has them in every state that produces oil.

In every state in which there is exploration for oil.

And if he were manufacturing those trucks in Louisiana, he would've paid on all the component parts wherever they are.

Justice Byron R. White: Mr. Sanford, (Voice Overlap) wouldn't you come out the same way if you had no sales tax at all? But --

Mr. Chapman L. Sanford: I think that we would.

Justice Byron R. White: Not just the use tax.

Mr. Chapman L. Sanford: That's correct.

Justice Byron R. White: If the state had no sales tax whatsoever but imposed the use tax, you would still say that this is perfectly valid tax for the state?

Mr. Chapman L. Sanford: That's correct.

The question that is here is how far down the line are we going to follow the stuff that's brought in.

If you bring in lumber and we say, “Okay, you're ready to use it, pay us the tax on it”, which is the way we handle it.

Now, how far should we have to follow that?

The man goes and he builds a boat with it.

Now, do we have to come find him and say, “Oh, you made a boat out of that, we want more tax”, and so he gives us more tax.

He puts his boat in the water and it sinks, and he said, “Well, wait a minute, I've made a mistake.

It's no good.

It's valueless”.

And then do we try to still follow and say, “Here's your money back”.

We take in as of the time that he gets there for use.

And I say, “What do you have here?

We're going to charge you tax on that?”

That's when our jurisdiction comes over the item.

Justice Arthur J. Goldberg: Mr. Sanford, may I ask you at this point, the question is not related precisely for that but to the isolated sale.

Take this airplane that's involved here.

Suppose that the seller, the Western Newspapers Union in New York flew the airplane into the airport, to either in New Orleans or Baton Rouge, not for use but to show it to Halliburton.

And Halliburton then bought that airplane right in New Orleans.

Would that be regarded to be an isolated sale under your law exempt from the sales tax?

Mr. Chapman L. Sanford: I doubt it, Your Honor.

He either -- they would fly -- if they were bringing it to sell, they were probably entering the sales business or at least they were bringing in for some type of use that would make it taxable and that's our point on this.

Justice Arthur J. Goldberg: Well, what use would be invalid?

Here's a case where -- suppose Halliburton said -- read an advertisement and said, “We see you have an airplane”.

West Germany is not in the business of selling airplanes and it's a company plane.

“So we see you have an airplane, we're interested.

Would you bring it in to the airport, we'd like to take a look at it.”

And they fly it in.

At that point, Halliburton looks at it and says, “We like your airplane.

Okay, we buy it”.

Do you interpret that to be a use in New Orleans that subjects Western to a use tax?

Mr. Chapman L. Sanford: I would -- its going to either be a use or they would've been entering the sales business, Your Honor.

I'm sure that we would want to tax it now.

Justice Arthur J. Goldberg: Sales business, generally?

Mr. Chapman L. Sanford: Well, I don't think they're general.

I think the person can be in more than one business, say generally they're in the newspaper business but if they want -- if they want to get into a business of selling an airplane, they're going to go out and try to acquire purchasers.

It's -- we would ordinarily tax them.

Now --

Justice Arthur J. Goldberg: Well, what is the meaning of your isolated sales provision then?

And he sell -- there's a sale.

Mr. Chapman L. Sanford: I hate to give it -- we don't have the situation in it.

But we would try to impose the tax either under the use tax or under the sales tax.

Because the purpose of the whole thing is in our argument is for the isolated sale is that Louisiana unlike the rest of the states, grants a credit for taxes paid by the state.

Justice Arthur J. Goldberg: But you also give an exemption for an isolated sale.

Mr. Chapman L. Sanford: Right.

But an item sold in Louisiana, an isolated sale will have already been the subject of the 2% tax.

Was every item or tangible personal property in the State of Louisiana would've been the subject of a 2% tax.

And --

Justice Hugo L. Black: Either use or sale?

Mr. Chapman L. Sanford: Yes, sir.

And in this case, if they bring in the sale, we say, “Well, have you paid the 2% tax anywhere?”

And they say, “No”.

We say, “Well fine, you owe us”.

But if they show what they have then we give them the credit and that establishes an equality.

It's not just an equality for the vendor, it's an equality of the users, the people that in compete -- in business competition.

They have the same burden and to my way of thinking, the whole thing is a completely establishing equality.

Now, it's true that you -- if you can so establish your business in one state or another as to have a lesser tax burden, there's no objection to that.

I don't think there's ever been an objection to it.

But in this case, if Halliburton were operating there, it would have paid taxes on a lot more than they want to pay us now.

And insofar as the isolated sale case, we'd give them a credit if it's borne it.

Any isolated sale in the Louisiana would've been the subject of it already.

Same goes for his necktie.

It would've already borne the tax of Louisiana.

And if he had bought it somewhere elsewhere it had borne it, all he has to show is that he had paid it and we say no tax.

And so equality is established by having all tangible personal property in the hands of users having borne a 2% tax either sales or use.

And that puts the vendors, we're not trying to give our vendors any kind of special advantage and they don't get it because one can go out of the state to the vendor of his choice and get credit for the tax.

And we don't push anyone.

Now, other states don't do that.

And that's the difference of these cases that he's talking about.

He says the -- Alabama does not give a credit.

Justice Hugo L. Black: May I?

Mr. Chapman L. Sanford: And --

Justice Hugo L. Black: If Louisiana ever tries to put any tax on the knots and bolts as separate things in a completed machine?

Mr. Chapman L. Sanford: When it's for the owner and user Your Honor.

We have an exemption where for resale or for manufacture for resale.

Justice Hugo L. Black: I'm talking about whether -- when a machine comes into the state, a completed machine --

Mr. Chapman L. Sanford: Oh!

Justice Hugo L. Black: -- it has knots, bolts, maybe an aluminum coming from Colorado, steel coming from Alabama and all and various other places.

Do you try to split it up and on your use tax, tax the knots and bolts and the material?

Mr. Chapman L. Sanford: No, sir.

Of course not, they're merely forms of (Voice Overlap) --

Justice Hugo L. Black: Well, you're trying to tax a thing that's there.

Mr. Chapman L. Sanford: The thing that is there.

And that the cost of those items in this situation is what is used to determine the cost.

Because that is all that is available and it's not unreasonable to use it in this case.

Chief Justice Earl Warren: Well, Mr. -- may I ask you, if the thing is manufactured in Louisiana, do you charge for the knots and the bolts and the various other materials that are in it or do you charge the tax on the completed article as of its value when it's ready for use?

Mr. Chapman L. Sanford: No, sir.

We don't do either.

We charge of the knots and bolts as they come in for use.

We don't ever look at what --

Chief Justice Earl Warren: Yes.

Well, you do put the tax on.

It's a -- it's not all maybe at the same time but you do put a tax on those things but when the article is completed in Louisiana --

Mr. Chapman L. Sanford: We don't --

Chief Justice Earl Warren: You don't put any other tax which would include the tax on the labor and the overhead that goes in to making a completed product.

Mr. Chapman L. Sanford: No, sir.

We don't look further or pass the first moment of taxation.

What is done with it after it comes in Louisiana, well, we don't feel that the law require -- makes us go, keep watching to see what's become of these particular items that he used.

Unknown Speaker: (Voice Overlap)

Justice Hugo L. Black: Do you put --

Mr. Chapman L. Sanford: It would be.

As a matter of fact, it would --

Justice Hugo L. Black: You put the tax first as I understand it on the knots and bolts when you come in there because they come in as knots and bolts.

Mr. Chapman L. Sanford: That's correct, Your Honor.

Justice Hugo L. Black: They don't come in as completed machines.

Mr. Chapman L. Sanford: That's right.

Justice William J. Brennan: And I take it, these knots and bolts (Inaudible) the value is affected on both labor and overhead, isn't it?

Mr. Chapman L. Sanford: Absolutely.

And the whole thing is they would have as a measure is not susceptible administration.

Justice William J. Brennan: As I gather with these elements is that for the Louisiana manufacturer, the instance -- in fact it's going to be used or they're going to use it of the knots and bolts that he puts together and he pays the tax on those before he puts them together onto this truck, is that it?

Mr. Chapman L. Sanford: That's correct.

Justice William J. Brennan: Or rather the outside manufacturer comes in with the job order complete and the value of that thing is completed when he first used it, that he was thus taxable for.

Mr. Chapman L. Sanford: Yes, sir.

Justice William J. Brennan: Is that it?

Mr. Chapman L. Sanford: That's correct.

Justice Tom C. Clark: You don't deduct your labor on -- in going in to the knots and bolts, do you?

Mr. Chapman L. Sanford: No, sir.

We treat that as we have treated them, the items that (Voice Overlap) --

Justice Tom C. Clark: You don't deduct the labor when the truck comes in?

Mr. Chapman L. Sanford: No, sir.

Thank you, Your Honor.