GENERAL MOTORS v. WASHINGTON

Print this transcript Transcript: 

Argument of Donald K. Barnes

Chief Justice Earl Warren: Number 115, General Motors Corporation, Appellant, versus Washington, et al.

Mr. Barnes, you may proceed with your argument now.

Mr. Donald K. Barnes: Mr. Chief Justice and may it please the Court.

This appeal challenges the constitutionality of unapportioned gross receipts tax assessment made by the State of Washington against General Motors Corporation with respect to exclusively interstate commerce, and it challenges that assessment on two grounds, interstate commerce and due process and two points under each.

Rather startling new law would be created by affirmance of this decision, the statute under which the assessments were made have been in effect for 20 years and have been as it's going on for longer than that before this issue was raised and there's no precedent for it anywhere.

Reversal however, requires only the application of familiar principles denied particularly extraordinary facts.

Well, the prior decisions of this Court in state tax matters indicate that there are two things that need to be kept in mind carefully, now I want to mention those before I go into the details of the facts.

The first is the nature of the tax that makes a lot of difference as we look at each precedent and each set of facts, and second, as to the facts not only what was done but where it was done.

This tax is one which is imposed specifically by the statute and directed to be a burden upon the vendor for the privilege of engaging in the business of making sales at wholesale and measured by unapportioned gross receipts derived or related to those sales.

Now, the circumstances to which a tax of that nature can constitutionally be applied are considerably narrower than the circumstances which will support any apportioned tax including, best example, and that income tax even though that's paid by the vendor also, or a consumption tax, the sales or use tax which is paid by the vendee.

Now, the facts here are that, although constitutionally from constitutional point of view very simple, they're quite detailed.

General Motors Corporation is a Delaware Corporation that's qualified to do business in Washington.

Its business is manufacturing primarily automobiles and parts and accessories therefore and some of the -- those products are involved in this suit.

There are many other products which are not involved here.

The selling which the Corporation does is incidental to and a part of its manufacturing activity.

We are not, in other words, a merchant.

The Corporation is organized into divisions and conducts its business through divisions which is still not separately incorporated are substantially independent of each other and in fact to a considerable degree in competition with each other.

This appeal involves transactions of only at Chevrolet, Oldsmobile, Pontiac, and General Motors Parts Divisions.

The first three manufacturing automobiles by that name, Chevrolet also trucks and General Motors Parts supplying parts and accessories for service requirements of dealers in the aftermarket.

You will recognize that Chevrolet and Pontiac for example are in competition with each other.

Now, in the State of Washington, there are no manufacturing facilities for any part of the corporation.

There are, however, offices of some of the other divisions which are not involved in this suit.

They either are concerned with other products or they're concerned with entirely different activities such as financing.

The tax on all of the transactions that are related in any way to those offices, has been paid without dispute and is not here involved in any way.

There is in the State, no office of any kind having any relation to any of the tax receipts in the first of two classes of transactions.

In the second class, there is a small branch which will be mentioned in a minute.

Now, the transactions which are here in -- in dispute, all concerned products which are manufactured entirely outside of the State, sold entirely outside of the State, delivered outside of the State to common carriers, paid for outside of the State, and shipped into the State.

They're all sales at wholesale to independent dealers.

Now, the sales organization, since we are talking about a tax on the business of selling is of immediate concern, and it's the same for each of these three principal divisions, although each is independent of the other, each has a national headquarters in Michigan.

Each has a -- a regional West Coast Office in California.

Each has its lowest organizational office in Portland, Oregon.

Now, that zone office in each case covers a territory of all of State of Washington, all of Oregon, all of Alaska, and variously parts of Idaho, Montana and Wyoming.

The personnel at Pontiac office, and similarly in the Olds office run from 20 to 22 people and that gets up to 40 in the case of Chevrolet as it's quite apparent, that's very thin coverage for so large a territory as we've just described.

Those people worked in most -- most of them in and some in and out of the offices in Portland, but there are two classes of employees belonging to those offices, who are assigned specific territories within the zone and reside in those territories.

Those are the service representatives and the so-called district managers.

Now, combining those two groups, the maximum in Washington at any one time that is stationed in Washington, was the Pontiac division 3, Oldsmobile 6, and Chevrolet 17.

The zone manager responsible for having the right dealers in the right place to this --

Justice Byron R. White: (Inaudible)

Mr. Donald K. Barnes: They may, Mr. Justice White.

They are assigned to territories which are at least flatly in Washington.One of them may have lived in -- in Oregon, worked in Washington.

I think we're not sure.

I'll assume they lived in Washington, some of them do.

There's --

Justice Tom C. Clark: (Inaudible)

Mr. Donald K. Barnes: I didn't hear you sir.

Justice Tom C. Clark: (Inaudible)

Mr. Donald K. Barnes: Yes, Mr. Justice Clark, the three Pontiac men worked only for Pontiac, the Oldsmobile were only for Oldsmobile, and so forth, and as I said, in competition with each other.

Justice William J. Brennan: And do I understand that they service the dealership, is that it, these fellows?

Mr. Donald K. Barnes: They call on the dealerships of service representatives, advised the dealers with respect to service problems, that is how to maintain the automobiles and the district managers advised them about everything else, how many salesmen they have and -- and how to project the estimates of how many cars they'll need.

Justice William J. Brennan: (Inaudible) the district managers.

Mr. Donald K. Barnes: District manager is the one who does this.

Justice William J. Brennan: Oh, he's the one, and where is he located?

Mr. Donald K. Barnes: He is assigned a territory with 30 or 40 dealers.

He lives within that territory.

And as I say in the case of Pontiac, there were three of them who were -- two I believe, lived in Washington, one lived in Oregon, but worked also in Washington.

His office is the office of the zone in Portland, Oregon to which he reports and visits occasionally.

The zone manager is the man in-charge of the whole office in the whole area.

The district manager is the law man.

He isn't in-charge of anybody.

Justice Tom C. Clark: General Motors have other divisions that operate in Washington State?

Mr. Donald K. Barnes: Yes, Mr. Justice Clark.

Justice Tom C. Clark: Are these three -- you currently -- these three, I don't understand.

Perhaps, you'll explain it in your argument if you're ready.

Mr. Donald K. Barnes: Why we've mentioned these three only?

Justice Tom C. Clark: Yes.

Mr. Donald K. Barnes: Because the assessments were made against them and not against the others.

It was a matter of the State's audit procedure.

Justice Tom C. Clark: This is the only one -- these three are the only ones involved.

Mr. Donald K. Barnes: Four --

Justice Tom C. Clark: Four.

Mr. Donald K. Barnes: -- the General -- three car divisions plus the General Motors Parts Division.

Justice Tom C. Clark: I see.

Mr. Donald K. Barnes: But similar assessments could have been made against other divisions that would operate in the same way.

There are still others as I said before which operate through offices in the State and they pay taxes on their operations.

Justice Byron R. White: (Inaudible)

Mr. Donald K. Barnes: One example which is mentioned in the State's brief is United Motors Service Division.

United Motors Service Division is a distributor of accessories and some parts.

A good example is -- is batteries.

When dealers and gas stations require batteries for replacement, they buy them from distributors of United Motors Service Division.

Justice Byron R. White: Now, does the United Motors Service Division office in the State of Washington perform services similar to the zone office in connection with these other three divisions?

Mr. Donald K. Barnes: Generally similar, Mr. Justice White but it has to do with the products which they are handling --

Justice Byron R. White: I understand.

Mr. Donald K. Barnes: Not those of the car divisions.

Justice Byron R. White: I understand -- I understand but you have paid your tax on those in -- in the case of United Motors without arguing.

Mr. Donald K. Barnes: That is correct.

Justice Byron R. White: And apparently because the -- these people who perform this service are gathered together in an office?

I mean you have an office --

Mr. Donald K. Barnes: We have an office, yes sir.

Justice Byron R. White: -- they were name on the door, is -- is that the -- is the critical -- the critical fact in (Voice Overlap) --

Mr. Donald K. Barnes: It is.

It is.

Justice Byron R. White: And that generally, the -- this is just a part of a general rule that he had sufficient activity on a State and the office measures for this insufficient activity in the State or not?

Mr. Donald K. Barnes: If we have an office in the State, any transaction passing through that office is considered part of the base for this type of tax.

Justice Byron R. White: In the case of United Motors, do you have a whole inventory in the State?

Mr. Donald K. Barnes: I don't know whether that allows in the State or not.

I suspect they do not.

Justice Byron R. White: But they didn't -- but these people, the United Motors for example, I don't -- do -- do they actually have salesmen that solicit?

(Voice Overlap) --

Mr. Donald K. Barnes: Their functions -- their functions are about the same as those of the district managers for the car division.

Justice Byron R. White: No solicitation.

Mr. Donald K. Barnes: Generally no solicitation.

It's promotion.

The zone manager is responsible for having the right dealers in the right place, his staff including these district managers, give him some assistance.

He gets a lot more from headquarters offices in Michigan as to where dealership should be placed to meet the market effectively.

And then he makes recommendations to the region and headquarters offices where the selections are approved, then he executes a dealer selling agreement which is a rather formal document, he executes that at his office in Portland.

It defines the relationship which will exist from then on between the manufacturer and the dealer.

And the dealer is an -- an independent customer of the corporation, not its agent nor its emissary in any way.

The dealer provides his own premises, his own inventory, his own tools, his own personnel.

His new car inventory is usually financed and sometimes that's done by General Motors Acceptance Corporation, which is a wholly owned subsidiary of the General Motors Corporation.

And of course, if the tax is due and that finance business are paid at General Motors Acceptance Corporation.

In a few cases, part of the fixed capital which is a very heavy requirement for a new dealership is supplied temporarily by Motors Holding Division, which is another and separate Division of General Motors Corporation.

It again, pays the taxes on its own transactions.

Now, the dealers' business is retailing new cars, parts and accessories which he buys from General Motors Corporation and other related products which he buys from others such as tires, used cars, fuel, and so forth.

And sometimes, the dealers carry competing lines of automobiles, I mean not competing lines of our own but a competing lines of other unrelated manufacturers.

A dealer sells where he pleases and sets his own resale prices.

But under the contract, he has a duty to develop the market for his particular line of car in that vicinity.

And to that end, he's required to have adequate premises, personnel, stock, capital, tools and signs, uniform accounting, so that his results can be compared or at least uniform financial statements.

The result of accounting which can be compared with other dealerships to detect financial weaknesses and so forth and he must submit a number of reports, the most important to which are for the purpose of assisting the corporations' production planning because automobiles as you know are sold to make, that is the are made-to-order Chevrolet alone could make 2 -- 2,000,000 different kinds of automobiles under all the options which are available.

After the agreement has been entered into, the function of the zone office and all its personnel is to assist the dealer in any way he can to make his operation profitable and to check his performance of the agreement and see that he lives up to it.

Financial matters are approached through these financial statements.

The -- there's advice given also on proper development and utilization of sales personnel and sales methods, similarly on service procedures and the handling of service complaints.

Most of the principles which go into this advice and the details of it for that matter are developed by staffs in the zone, region and headquarters offices but are then delivered by the district managers or service representatives through their regular visits to the dealers which they make, or as often as once a week.

In the case of larger dealers, sometimes less for the smaller ones and there also, they pick up the dealers' complaints and questions and carry them into the other offices for technical assistance and handle what they can on their own.

There are -- these business provided the -- these two people are supplemented by irregular visits by the zone manager himself, by the department heads in his office, and by personnel from other offices and experts that are brought in for special cases.

Now, the reports that the dealer is required to submit begin with a ten-day report, and on that, every ten days, he reports to the zone office the unit sales, that is the number of automobiles he has sold during the past 10 days.

The inventory has left at the end of the ten days.

This is used for the development of this projection -- economic projecting trends which you -- if you watch the new -- automobile reports of all the newspapers will show you every ten days, they're boasting about how good business is because of what happened during the last ten days by putting all these reports countrywide together.

Financial statements, I mentioned before, is submitted monthly.

And the interesting one which is insisted upon by Chevrolet and it's usual in the case of Pontiac, is a 90-day projection.

The district manager and the dealer sit down together in the dealers' place of business and make up this projection.

And that estimates the number of cars which the dealer will need to order for each month for the next three months, as revised each month.

The purpose of course, is production planning for the reason already mentioned.

Now, the zone office consolidates these reports from all the dealers on its zone and passes on to the factory the consolidation, not the individual reports.

Oldsmobile doesn't -- has this procedure on its books but at least the zone office in Portland has said that they find little occasion to use if they may, the estimates by their own personnel in their own office.

At least that they are not orders as you see.

Now, the sales procedure starts with an order, it's really a purchase procedure by the dealer which is sent by the dealer of the zone office in almost all cases by mail, though occasionally, he may telephone in an urgent one, and occasionally, the district manager happens to be there.

He'll hand it to him.

Now, the district manager carried it into the zone office.

The zone office records these things and then forwards them to proper factory, and they have to make a choice there because not all models are made at all factories.

Some may be made in California, most of them are.

A few come only from Missouri, and some have to be shipped from Michigan.

The proper factory to which the order is sent, accepts or rejects the order and acceptance or rejection is no formality in this situation, again, because of the wide variety of the product.

There are many times that the factory cannot make the particular order that has -- particular car that has been ordered.

It must reject the order and request the dealer to submit something else.

The factory notifies the dealer, it then schedules the car for production which takes a matter of two to three weeks.

If everything is on time, it receives payment when time comes for delivery.

And then having received payment, it makes delivery to a common carrier that will be the factory passing the title at that point and consigned to the dealer in this case in Washington.

Now as you see from this description, there is ordinarily no solicitation of orders, although I think that point is a matter of complete immateriality.

The retail demand for automobiles is created wisely by the dealer activity.

He does a lot of soliciting, and supplemented by the national advertising which is placed at entirely with -- at Michigan and then of course distributed by the media not by us to all over the country.

The dealer will buy all of the cars that he can sell, so it becomes unnecessary to solicit from him.

If we can get him to make the sales to the retail customers, the wholesale business follows.

The corporation personnel do not contact the dealer's customers except to referee an occasional service complaint.

The trial court divided the transactions into two classes.

And the first class, it put all sales by Oldsmobile, all sales by Pontiac, all sales by General Motors Parts Division, and Chevrolet sales to dealers in the nine southern counties of Washington.

Now, as to these transactions, no Washington office of any kind had any contact, whatsoever.

And in the case of General Motors Parts Division, although with there's -- no point was made on this in the trial court, it appears on evidence, the court -- I mean the Division has no field personnel at all.

All its men stay right on the warehouse and simply receive a field orders at that point.

A second class -- no, the trial court held the assessment in -- unconstitutional as to all these first class of transactions and was reversed by the Washington Supreme Court.

The second class of transactions involves only sales by Chevrolet Division to dealers located in counties other than the nine southern counties of Washington.

And the sole difference between those transactions and the others is that as to those dealers, to whom those sales were made, there was within the State a one-man branch office, this one man had a secretary.

He had a territory which included all of that part of Washington which I've mentioned plus all of Alaska and part of Idaho.

He had no contact with any other personnel and no part in the activity which I previously described.

His procedure was -- his function was to hold hands as he said, “The dealers in that territory,” and primarily to expedite deliveries of this car shipped from California and so forth during a period of short supply.

Both lower courts held the assessments constitutional as to the sales to those dealers.

Now, the activities in and out of Washington, wholly out of Washington are the engineering designed procurement, manufacture of the automobiles, the financial management, general management, the placement of the advertisement, the sales procedures, so far as General Motors is concerned, that is the receipt and acceptance of the orders, the delivery of the product and receive the payment.

Now, partly out of the State and partly within it is this function of selecting and appointing dealers in the first place, the rendering of advice and assistant to the dealers and checking on the dealer performance, most of which as we said was done at the leg-work level by the resident district manager and is assisted sometimes by the service manager.

That's a long recitation of facts but there is much detail and yet very little in substance that can't be said very briefly to recapitulate that.

Automobiles, parts and accessories are manufactured, sold and delivered entirely out-of the state and shipped to customers within the State.

No new -- there is no related intrastate commerce of any kind and there is no local office of any kind.

The local activity by traveling representatives in furtherance is in furtherance of out-of-state sales and that is the only instate activity.

The exceptions, of course, are the one-man office previously mentioned relating to deliveries of the second class, and there is no field personnel at all for General Motors Parts Division and like characterizations hereafter will be subject to those two exceptions to avoid repetition.

Now, the formulation and application of constitutional rules in this area depends upon the incidence and to some extent upon the incidence and impact of tax.

It is said that the purpose of taxes is to pay for benefits to the taxpayer or at least to a class on which the taxpayer is a member and that they should, therefore, bear some physical relation to the benefits and protection which are conferred by the Governor.

And the basis of tax was distinguished from its purpose is a privilege or a property or an activity, or something which is within the jurisdiction of the taxing authority, and the tax, therefore, should bear some relationship to that privilege or property or activity.

Now, the Washington Court, in approaching this problem, we are sure was mistaken in its application of economic principles and that is why it strained to avoid the constitutional rules which have been established by this Court.

It fell for this market state concept, that is, “Market provides the income and the State is therefore entitled to some payment for protecting the market,” and or it goes on with the -- the vendor is taking money out of the State when he sells products into it.

Now, that type of argument is unsound on all accounts.

And as this Court has frequently observed, income is produced not by the market but by capital or labor and both combined and therefore is produced where the capital and labor or both combined or expended and not where the customer happens to be.

The State's protection to the market is protection to the customers, not to the vendor or only very incidentally, to the vendor.

All states of course are equally producer in markets so that this argument about taking money out of the market is completely fallacious.

The value which is put on the State equals value taken out.

It's no more reasonable to say that General Motors takes money out of Washington than to say that Washington takes automobiles away from General Motors.

Both statements are equally absurd.

Now, the Court inadvertently perhaps explains its action, its opinion by relying to uphold the tax upon the presence of the customer and upon the fact that he reads the newspapers, "Beam in national advertisement," the Court said.

Now, it's perfectly reasonable as Mr. Justice Rutledge has had occasioned to point out that a tax which is paid by the customer, that is a consumer tax, like a use tax, should be paid to the consumer's state because it's the consumer who's getting the benefits or the protection of that state.

It's the consumer who can -- if he doesn't like it, control it with his fellow voters through the elective franchise and it's there that competition is concerned.

And we have used taxes and sales taxes both paid by the consumer balancing in the state of the consumer so that the -- the out-of-state vendor has no advantage over the instate vendor.

That is fine for consumer taxes.

But this tax, like other taxes on the vendor, should be paid to the vendor's state, and that is where the vendor operates, these taxes on the vendor.

And the statute specifically forbids it's being passed on as such to customers within the State.

It is passed on instead as part of the cost, just like any other cost that goes into the computation of general prices.

The result is, it's paid by customers in Michigan.

It has no effect on local competition.

The contrast to this, well the property tax which my friend mentioned in the State's brief, of course, these automobiles to the extent, they're manufactured in Michigan, come out of factories in Michigan.

Property taxes are paid on those factories to Michigan localities and those taxes are included in the cost which the Washington customer pays when he buys his car, but that's as it should be because the factories in -- on which the taxes are paid are contributing to the Washington customer's car and so are the services provided by the State of Michigan in support to those factories.

That's entirely different from a tax which is related merely to the fact that there's a customer in Washington which is required to be passed onto a customer in Michigan.

The constitutional rules involved here are four.

First, States may not tax the privilege of engaging in interstate commerce.

Second, States may not discriminate against interstate commerce nor expose it to multiple burdens.

Third, States may not tax subjects not within their territory, and fourth, States may not impose taxes bearing no reasonable relation -- relation to services and protection afforded by the State.

Now, this tax as applied through these assessments is on the privilege of engaging in exclusively interstate commerce.

The Supreme Court of Washington said, “Though the tax is on local activities, these district managers running around in the State.”

But such activities were solely in furtherance of sales which themselves were made as that Supreme Court recognized entirely outside of the State.

They were not any part of nor were they in any way related to in the intrastate business and they were not related to any local office as the trial court found.

Now, the statute says that the tax is on the act or privilege of engaging in the business of making wholesale sales, engaging within the State, the business of making wholesale sales.

Because it's where they use the statutory version or the judicial version, it seems to me to make no difference.

A tax which is on an act, which is necessarily and exclusively a part of interstate commerce is a tax on interstate commerce and if its --

Justice Byron R. White: (Inaudible) on United Motors Division where you have an office there --

Mr. Donald K. Barnes: Mr. Justice White --

Justice Byron R. White: -- (Voice Overlap) what you're saying was the -- was the bear justice of -- heavily upon it, the sale takes place outside, no solicitation outside?

Mr. Donald K. Barnes: That, you see -- as of very keen observations of it.

It would -- it would indeed.

All I can say to that and that one time I thought of weaving it into argument, saying it before I was asked, is that our policy is that we have an office in the State we pay the tax on every transaction that passes through that.

Now, I mean not merely the State but also this does happen in -- although, it's a very rare tax of Washington and I believe in West Virginia, only two have it and West Virginia doesn't apply it this way.

Justice Byron R. White: I gather then, you don't concede the legality of the collection before you have an office in the State?

Mr. Donald K. Barnes: If -- if that -- that operation --

Justice Byron R. White: You didn't pay the tax without (Inaudible)

Mr. Donald K. Barnes: That's -- that's right.

That operation is vulnerable to attack on the ground that the State may not impose a tax on interstate commerce and that it didn't held a number of times by this Court.

Our case is almost identical with Alpha Portland Cement which first said that and Sweeney Brothers back in the 1920s --

Justice Byron R. White: If you win this then that would be your next case, I think?

Mr. Donald K. Barnes: That does not follow.

I -- I hope that we won't have this type of tax around much longer.

Justice Hugo L. Black: (Inaudible)

Mr. Donald K. Barnes: To the State of Washington?

Justice Hugo L. Black: Yes.

Mr. Donald K. Barnes: Since they enacted, I think that was 1935, but we're not -- the tax is not a burden-some tax when it is related to a major activity within the State.

And I say -- I -- it does occur in other jurisdictions that exist -- that says --

Justice William J. Brennan: But if I -- if I get it though Mr. Barnes, what makes it made you are minor is whether you have an office located.

Mr. Donald K. Barnes: That is the principle distinction, but we come to other differences too.

There, as I pointed out, there are three or four reasons altogether in which four ways in which these -- the assessments violate the constitutional rules established by this Court.

Only the first one is subject to the confusion which Mr. Justice White has pointed out.

That is -- that would apply also to our offices there and I should have that since the end to the order period here involved, Chevrolet division has split its Portland zone office and has a zone office in Seattle and it pays the tax without question on the transactions going through that office.

Chief Justice Earl Warren: (Inaudible) district managers have any office at all?

Mr. Donald K. Barnes: We know that none other than their zone office in Portland as they simply work from their homes, calling on the dealers and of course they may get telephone calls and mail at their homes but their only office is the zone office in Portland.

Chief Justice Earl Warren: Is that -- is that like the design to keep them from having an office (Inaudible) tax?

Mr. Donald K. Barnes: No, Mr. Chief Justice.

The business -- the business is run without any regard to taxes and tax problems are my problem after the business had been done.

The -- the zone office operates that way because there's no reason for this individual to have an -- an office.

His job is to work out of the zone office and go call on people and the only reason that we don't say that his -- that he is in the zone office is because the territory is so large.

If he is in Northern Washington for example, they don't want him to come back into Portland every afternoon, so he just comes in once every week or two or when he has a vacation to report.

Chief Justice Earl Warren: But, as I understood it, he also had a moment to the duties in connection with the thing.He even straightened out complaints for these 20 or 30 dealers that he -- that he have, did he not?

Mr. Donald K. Barnes: In their customer complaints?

Chief Justice Earl Warren: Yes.

Mr. Donald K. Barnes: The -- the service representative would do that, that he --

Chief Justice Earl Warren: But he will tell to the district manager, doesn't he?

Mr. Donald K. Barnes: No.

No, he reports to a head -- to a -- to his department head in the same zone office but it's a separate --

Chief Justice Earl Warren: In Portland?

Mr. Donald K. Barnes: In Portland, I'm sorry.

The customer complaint is not a big part of the business.

Usually, the dealers can handle their own complaints but occasionally, we get a customer who writes to Mr. Frederick Downer in New York and complains about his Chevrolet, doesn't run right then, it goes back.

In that case, the service representative would take it to deal and say, “What did you do for this fellow and what's the matter with his car?”

It's not a frequent occurrence but it does happen.

I mentioned it because it's the only contact that any of our representatives have with the ultimate customer, that is with the retail -- the dealer's retail customer.

Justice Hugo L. Black: How many people are in the Oregon office?

Mr. Donald K. Barnes: In the Oregon office -- in the case of --

Justice Hugo L. Black: -- (Voice Overlap) Washington that but who engaged in these activities in Washington?

Mr. Donald K. Barnes: In the case of Pontiac Division, there were three who resided in Washington and the case of Oldsmobile 6 and the case of Chevrolet 17, and then there were sporadic visits by other personnel from other offices, but those were the maximum numbers which anytime resided within the State.

Justice Hugo L. Black: I understand you don't -- you don't assert that they would become liable for tax simply by moving that office that they've rented or owned, in Portland over the Washington.

Mr. Donald K. Barnes: I did say exactly that unless we're sure they would be liable for it but I'm sure we would pay it because we in fact did that.

When we split the Portland Chevrolet office and put half of it in Seattle, we have since that time paid tax on every transaction going through the Seattle office.

Justice Hugo L. Black: I don't understand why you wouldn't in the way be taken from taxes and given it over to Oregon.

You've said, paid tax on that office, but in reality, it belongs to Washington.

Justice William O. Douglas: I think you've misunderstood Justice Black's question.

You gave the number of people employed in Washington.

He asked the number of people employed in Oregon.

Mr. Donald K. Barnes: Well, I'm sorry, sir.

The Pontiac and Oldsmobile offices each have from 20 to 22 total personnel including the ones which are in Washington, the numbers I just gave you, the balance are in Oregon.

Chevrolet has about 40 home -- somewhere between 25 and 30 are in Oregon, permanently located in Oregon.

Justice Hugo L. Black: And you pay the tax to Oregon, connection with that office, do you?

Mr. Donald K. Barnes: Yes, Your Honor.

Not this type of tax.

Oregon doesn't have this type of tax.

We do pay some kind of a franchise tax.

I know as you're sure what it is except there's an apportioned tax to the State of Oregon.

We also pay one to the State of California and one to State of Michigan and one to Missouri -- part of this.

Unknown Speaker: (Inaudible)

Mr. Donald K. Barnes: That is from the due process questions, the amount of the tax is enormous in relation to the activity which is carried on within the State of Washington.

And that's one of our -- that's our fourth point that the tax is invalid because the assessment -- there is no reasonable relation to its subject.

That is activity within the State.

Justice William J. Brennan: Could you put a label on this tax?

Mr. Donald K. Barnes: Unapportioned gross receipts, normally not.

It's a tax for the privilege of engaging in the business of making wholesale sales, within the State, measured by unapportioned gross receipts.

Justice William J. Brennan: Now, was that your label, is that what the statute tells?

Mr. Donald K. Barnes: That is almost an exact quotation of the statute.

Justice William J. Brennan: Well, what label do you give that, franchise, gross receipt?

Mr. Donald K. Barnes: I call it franchise tax, yes sir.

Justice William J. Brennan: Measured by --

Mr. Donald K. Barnes: Unapportioned gross receipts.

Justice Hugo L. Black: And you did -- you didn't have a (Inaudible) the right to impose such a tax, that tax.

Mr. Donald K. Barnes: On interstate commerce, yes sir.

Justice Hugo L. Black: But on the interstate commerce, but on wholesale in the State?

Mr. Donald K. Barnes: No.

If the wholesale sale was made within the State, then the tax is not constitutionally infirmed on any ground has yet been raised because this is a fundamentally unsound kind of tax because it even locally, without regard to interstate --

Justice Hugo L. Black: None of by figure and sounds in there but I --

Mr. Donald K. Barnes: Well, this one's a champion in that respect because it pyramids and it discriminates as augments -- as against the, let's say a succession of little businesses coming up with the same final product and in favor of a -- a large and integrated business doing the same thing, and the illustration we have on our brief is one of those things.

Justice Hugo L. Black: You don't mean that about this tax, do you?

Mr. Donald K. Barnes: This tax, yes.

Justice Hugo L. Black: But this tax works on the little fellow did in General Motors?

Mr. Donald K. Barnes: It's worst on the little fellow than on someone else in the same business and integrated.

It would be if you could conceive of it.

The example I gave was a -- an integrated furniture manufacturer who did everything that was needed to make a table and sell at retail from cutting down the timber to making a retail sale.

He paid one tax.

And except for certain exemptions in the statute which don't affect the principle here, if you broke that down among little businesses and one fellow cutting the trees and selling them and somebody else making lumber and somebody else making table and somebody wholesaling and somebody retailing, you have five taxes.

So the more business is broken up, the more this tax discriminates.

However, that issue is not in this case.

That's just pertinent.

It is pertinent in this respect that because the tax is so fundamentally unsound at any place, it makes it more difficult to appreciate the way it discriminates against interstate commerce as it surely does.

And as to this first point --

Justice Byron R. White: (Inaudible) to make the wholesales of tables and lumbers (Inaudible) the furniture manufacturer, is that a wholesale sale?

Mr. Donald K. Barnes: It's taxed under the Washington Act -- but the Washington Act, as we'll come to later on, is divided into a lot of different classes.

Now, I made the point before that we are -- we are not merchants, we are manufacturers.

Justice Byron R. White: Yes.

Mr. Donald K. Barnes: And you're making really the same point now, Mr. Justice White, that the logger is not a seller -- not a merchant, he's a logger.

The statute taxes us on, because of separate rates, various activities separately.

It taxes extraction which I believe is what that would come under.

It taxes manufacturing, it taxes wholesaling, it taxes retailing, and there's a catch-all clause that taxes everything else.

Justice Byron R. White: All -- all through the gross receipts measurement thing.

Mr. Donald K. Barnes: Yes, the difference being rates.

I like to quote to some of these with one first point to quote Mr. Justice Clark in Northwestern States.

He said, “It's beyond dispute that a State may not lay a tax on the privilege of engaging interstate commerce.

For a reasons which I've just mentioned in response to questions on apportioned gross receipts tax, it's inherently discriminatory in that point also.”

It was made by Mr. Justice Clark in Northwestern States.

That is if it -- by its very nature, it tends to make interstate commerce bear more than its fair share.

The reason for that is that it selects incidents and then it says, “Here's an incident on which we'll place a tax.”

And that Washington of course can tax these little incidents, so can somebody else.

This incident of wholesale selling for example, which is supposed to be the basis of the tax here and you get these multiple burdens.

That was the reasons that this very tax as the same one, was held invalid by this Court in Gwin, White & Prince and the exposition of that point is best made and there was somewhat later case of Nippert against Richmond.

Interstate commerce may of course become involved in the measure of tax.

If it gets itself so mixed up with intrastate commerce, that there isn't any reasonable way of separating it too and that's where the Norton Company got into trouble.

And this Court refused to upset the judgments, substitute its own judgment for that of the Supreme Court of Illinois when it held that Norton had to pay so much -- a tax so much somewhere to the this with respect to transactions which were interstate in character but which passed through and admittedly, intrastate local store operating within the business -- within the State.

But the transactions in our case have had no contact with any intrastate business whatever.

Chief Justice Earl Warren: Was this agreement executed between General Motors and the dealer, supervised as it is by -- by these district managers and these service people gets you into the same trouble?

Mr. Donald K. Barnes: You mean, does that put us in -- in intrastate business within the State?

Chief Justice Earl Warren: Yes.

Mr. Donald K. Barnes: No.

No, Mr. Justice -- Mr. Chief Justice.

If it did, you see, we're talking here about just one piece of business.

I could distinguish it from Norton.

Norton was an -- a manufacturer of abrasives and abrasive machineries.

And to simplify it, let's assume if they sold abrasives in this local store, they sold the machinery merely by shipping from their factory in Massachusetts.

Now, the -- the orders for the machinery which were passed through or deliveries which passed through the local store because they went along with this abrasive business were held to be so mixed up with the intrastate that you couldn't separate it.

Now, if you say that we're in anyway engaged in intrastate business here, as the operation of these dealerships, you have made us retailers and destroyed our wholesaling function.

In that case, there's no tax due at all because the only operation is retail and the tax amount has been paid.

This is a second stage that's involved here.

The State all along has walked a tight rope.

They wanted to make the dealer sort of part of General Motors, yet they've been awfully careful not to say they're an agent because if they ever said they're an agent, their whole case would fall.

If they -- if we sold these cars on consignment, and the dealer merely as our agent passed title to the retail customer, there would be no wholesale transaction and hence none to this tax.

The retail tax as I say is -- has been paid by the dealers.

Now, discriminatory structure of the Washington tax is our second problem.

The tax supplies, by its terms to manufacturing, if the product was manufactured within Washington, if the product is sold outside of Washington, but only if it's sold outside.

It applies to wholesaling if the product is sold within the State no matter where it's manufactured.

But it does not apply to manufacturing if the product is sold within the State.

Now, our former statute -- former version of the same statute was held unconstitutional by the Washington Court itself.

That version exempted from tax, from the tax under selling activity, receipts which had been subjected to the tax on the manufacturing activity.

The Court -- the Legislature then promptly reversed the exemption.

And the Washington Court now holds it constitutional on the theory that everyone pays only one tax on the wholesaling.

But it seems logical and reasonable if the original scheme was unconstitutional, mere in version of the statute to produce the same result, is not going to cure it.

The Washington Court looks at only one section of the tax in the tax law, and the proper test is the entire scheme of taxation.

We neglected to mention this in our brief but we did cite the case of Henneford against Silas Mason on another point and that's exactly what was involved there.

That was one of the early cases in which the constitutionality of the use tax was challenged.

And this Court held that although the use tax standing alone was obviously invalid because it applied only to products which were brought into the State having been purchased outside, and never to -- our products purchased within the State.

“If the whole thing was nevertheless constitutional because the use tax balanced the sales tax and equality was the theme,” said the Court, “of the entire scheme of -- of taxation.”

In Halliburton against Reilly, which is the latest case on this subject to come before this Court last -- last term, “A use tax which otherwise would have been valid was held invalid in part because it applied to certain transactions or bore more heavily on certain transactions, then would the corresponding sales tax had the transaction been entirely within the State of Louisiana."

And here, we have the same situation.

If other states have the same taxing scheme that Washington has, interstate commerce will always pay twice and intrastate will always pay only once.

Now, the City of St. Louis does have the same scheme and General Motors has a factory in St.Louis, and cars manufactured there, a few of them are sold in the State of Washington.

The taxes are paid twice on those transactions.

Once to the City of St. Louis for the privilege of manufacturing in St. Louis and once to the State of Washington if this assessment is upheld for the privilege of selling them to customers located in Washington.

The --

Justice Byron R. White: (Inaudible) and had an office -- a sales office there and you would still have to layer the taxes.

Mr. Donald K. Barnes: That is correct.

Justice Byron R. White: And you would make any, and -- and it's very doubtful if you could upset that Washington tax when those circumstances are the same.

I doubt that if the payment --

Mr. Donald K. Barnes: Now, that's the -- that's the point we were discussing a little earlier, as I've said beyond inherent unsoundness of this type of tax makes it difficult to keep in mind the difficulty it has with the interstate commerce.

I see that it's recess now.

Print this transcript Transcript: 

Argument of Donald K. Barnes

Mr. Donald K. Barnes: -- but couldn't before the recess in response to Mr. Justice White's question is that our judgment, and Mr. Justice Black's question, as to the policy of paying this type of tax when there is a zone office operating within the jurisdiction has been confirmed by this Court in the Norton decision and perhaps in the Field Enterprises case in which this Court affirmed per curiam.

Justice Byron R. White: (Inaudible)

Mr. Donald K. Barnes: Yes, Mr. Justice White.

Each of those cases involved that type of tax.

Field Enterprises of course was the same tax.

Now, the -- these zone offices, as distinguished from the one-man branch office I've mentioned before, do perform some intrastate functions.

They do receive and accept some orders.

And we -- we cannot claim that they are not in intrastate commerce as well as the interstate with which we are here concerned.

That being the case, under the Norton rule, the whole thing becomes taxable.

I say we did that before this -- this Court decided Norton.

But since Norton, there isn't any doubt we'll continue to do it.

And I want to mention due process.

Now, if, as the statute says, the taxes on the business of making sales, the transactions are outside the jurisdiction for the reason that every element of the sale takes place outside the jurisdiction.

And although, the unconstitutionality of this type of exaction is now customarily attributed to the Due Process Clause, I point out that the same result was achieved on numerous occasions before the due -- the Fourteenth Amendment was ever enacted or ever adapted, on the basic principle that state power is confined to its own territory.

And the best exposition of that principle was by Mr. Justice John Marshall Harlan in New York, Lake Erie and Western Railway against the Pennsylvania as far back as 1889, it doesn't come up since because the Due Process Clause was intervened.

But if, on the other hand, as the Washington court says, this tax is on local activities, that is the district managers running around within the State.

Its measure is grossly disproportion.

It is simply incredible that a tax of several hundred thousand dollars could be incurred by the activities of a few employees and then tax much more than their aggregate salaries and so on.

And the tax would be the same if there were only one employee in the State or if there were several thousands.

It's wholly unrelated also to time spent, things done or property used in the State and it's wholly unrelated to any protection, benefits or service which the State provides to our activities, related quantity, I mean.

It is not true, as the Washington court assumed, that once you find something that you can pin on -- pin onto as a taxable instrument that the measure of the tax is wholly irrelevant.

Due process requires that the measure still have some relation to the size of the activity.

There would be no objection under due process, as distinguished from interstate commerce, to a tax reasonably related quantitatively to instate activities.

For example, the employment tax of Washington is paid with respect to these employees.

There, there's a reasonable relation that tax is a percentage of the employees' salary and the benefits from that tax will be unemployment benefits if any of these people are thrown out of business by the activities of our competitors, will be paid to them by the State of Washington, where they live and work.

But the reason for this tax is the customers themselves and not any taxable activity within the State, and I'd like to reserve the balance of my time.

Chief Justice Earl Warren: Mr. Riley.

Argument of John W. Riley

Mr. John W. Riley: Mr. Chief Justice and Associate Justices, may it please the Court.

I find that it might -- we -- it's desirable from the State's standpoint to review briefly what it is that the State reports to tax.

And then I'd like to approach the question of the characterization of the tax and consider its measure and then answer Mr. Barnes' due process contentions.

Mr. Barnes' statement of facts has emphasized primarily that which General Motors does without the State and it seems to me, he lends very little emphasis upon that which they do conduct within the State.

He concedes that there are manufacturer.

But for some reason, they will not admit that they're also engaged in wholesaling activities within the State.

And we insist that the facts in this record here, which are quite extensive, they are unique and they are quite detailed, illustrate fully and adequately that the tax fair did in this audit periods here in question engaged in continuous and detailed and systematic business activities within the State.

Justice Byron R. White: Mr. Riley, you're -- I take it that you say that whatever the activities of the General Motors are in the State of Washington, they -- they are equivalent to -- to -- there must be some wholesale sales in the State under your statute I guess.

Mr. John W. Riley: Well, that relates to the incidence of the tax.

The incidence of the tax is on the act or privilege of engaging in business activities, and then under the act, there are a great number of categories --

Justice Byron R. White: Yes.

Mr. John W. Riley: -- manufacturing, wholesaling, retailing --

Justice Byron R. White: Yes.

Mr. John W. Riley: -- services, lawyers, pay the tax and so forth.

The measure --

Justice Byron R. White: What is the measure of wholesale sales or the wholesaling?

Mr. John W. Riley: The measure -- the measure is the -- is the proceeds of the sales resulting from the business activity.

And the measure I might say -- the point I'd like to develop later.

Justice Hugo L. Black: (Inaudible)

Mr. John W. Riley: Yes, Mr. Justice Black.

That is correct.

Justice Hugo L. Black: (Inaudible)

Mr. John W. Riley: Yes, Your Honor.

Justice Hugo L. Black: Does involve this tax?

Mr. John W. Riley: This specific tax.

Yes, Your Honor.

And we think it is quite significant in this case.

Very similar we believe in all respects.

Justice Hugo L. Black: There was an office.

Mr. John W. Riley: There was an office, Your Honor, which was -- they had a -- a great number of salesmen in Field Enterprises within the State who were soliciting orders.

None of the orders were accepted within the State.

They were all accepted and filled outside the State, points that are similar to this case.

The salesmen were directed from this office by a manager and several assistants and secretaries.

Justice Byron R. White: So they had actually -- they had salesmen working out of the office in Field Enterprise.

Mr. John W. Riley: Well, the salesmen didn't actually work out of the office.

They -- they were directed from the office.

I -- I don't believe it's --

Justice Byron R. White: But they did have salesmen soliciting sales in the -- in the State.

Mr. John W. Riley: They had salesman engaged in all types of promotional activities.

I don't think the analysis of that case would lend itself to the conclusion that they were soliciting sales.

They were promoting sales.

They were soliciting customers.

They were transmitting orders outside the State where they are accepted, I guess.

Justice Byron R. White: Well, that isn't done in here, in this case, isn't it?

Mr. John W. Riley: In this case, Your Honor, we contend that it is.

And I'd like to approach that indirectly.

And it -- it's done in this manner.

First of all, we -- Mr. Barnes has discussed in considerable detail, the instate activities of the resident district managers and service managers and parts managers.

These gentlemen, as it has been pointed out, laid their primary emphasis on the details of the retail dealership.

They have from 12 to 30 not 30 to 40 dealers, I think the record shows.

And they spend all of their time with them.

Now, there are, of course, other instate activities of personnel who do not reside in the State and there are also other activities of other divisions which I'd like to touch.

But turning, for the moment, to your specific question, Mr. Justice White, the manner in which we -- sales are solicited if -- if I may use that term in -- quite broadly.

The whole object, and the record discloses this and we've cited numerous references to the record, that the whole object of the activity, principally of these resident district managers, of whom there were some 27 for the three divisions with which you were concerned, is to obtain for the divisions concerned there share of the market.

And they did it by working with the dealers and forcing and seeking compliance with the detailed terms of the retail dealer selling agreement, which we think is a very significant document.

And they do it initially at the beginning of the year with the dealer by determining what that dealer's sales objective for his geographical zone.

These dealers have a geographical zone.

They're all stationed all around in strategic market areas of the State.

The State has a sales objective.

You -- I don't like -- I can't call other code.

I was never ever able in examining the various witnesses to get them to admit that it was a code but it is a sales objective.

And this is reduced in to sales objectives for a district and is reduced then to sales objectives for the particular member or retail dealer, member of the dealer organization.

And it is then administered by the district manager as it is stated in the trial court.

They counsel and advised him, if he isn't coming up to his projections so that he does come up to his projections.

And these projections come in the form of an exhibit, I believe its Exhibit 11, which will be found in the record.

Justice William O. Douglas: (Inaudible)

Mr. John W. Riley: Yes, indeed.

And they're constantly --

Justice William O. Douglas: That's the whole (Voice Overlap) --

Mr. John W. Riley: -- striving to develop their share of the market.

Record 407, Exhibit 11, shows the form of sales projection.

And in the zone office manual which is reproduced in the record, it is stated that this have the form and effect though they're not classically in order.

You can't take the thing out and see ordered by and paid for and so on and so forth.

It is to be treated as an order and it state it so specifically in the General Motors Zone Office Manual.

The orders about which we've been talking here, which the dealer later fills out and sends in to the Portland zone or back to Detroit or down to California, as a little form which is in the record, to designate the color and the type of accessories for a particular automobile included in a previously submitted sales projection which is Exhibit 11 Record 4.

This whole process of counseling and advising the dealers, seeking compliance with their inventory program, what could be more essential and what could be more like wholesaling than seeing that the dealer has in his stock, in his parts inventory, the parts program and -- and the requisite quantity of parts so as to comply with the General Motors Parts program.

This is a detail in the zone office manuals and the procedures board are detailed in the exhibits and in the record here.

It goes farther than that.

It includes training of retail dealer salesmen, sales meetings periodically through the year.

It includes training of the dealers' mechanics so they can give better service at the retail.

And this is a manner in which they complete their wholesale sales and they develop their market.

Primary emphasis is made in the retail dealership as the Supreme Court of the State of Washington said these activities pervade virtually every aspect of the retail dealers operation.

This is part and parcel of the so-called "strong retail dealer" or "quality dealer program", which General Motors maintains and has maintained throughout the other periods here in question.

They even counsel and advise as to the quantity of capital they have to have.

They had used car managers who counsel and advise the dealers to turn over used-cars and how to recondition used-cards because it's a statistic fact, as one of the witnesses said that the greater the volume of used-car sales, you have more capital for new car sales.

Now -- now, perhaps they've omitted a great many other types of activity of this instate personnel.

The retail -- incidentally, these district mangers, I believe the record shows, all reside within the State of Washington with the exception of those who have districts along the border and a district then may overlap the Columbia River and have a county in Oregon and a county in Washington and he may have the dealers in two -- have dealers in two States.

These then are some of the activities engaged in by resident personnel instate within the State of Washington.

Now, those district managers incidentally used their homes.

They have a telephone number at home but they -- for most part, work out the dealers' place of business according to our witnesses.

Now, there are great -- and many other activities I have included in my previous discussions.

Some of the functions of people who are members of the zone office staff across the river in Portland.

These staffs, I believe Mr. Barnes gave you the figures, the number of people that were there, have a number of personnel which they have an assistant business manager.

He comes in and out of a dealer's place of business and works with the accountants to help him in his accounting problems to see that the forms that General Motors requires are submitted in the proper manner.

Justice Tom C. Clark: From -- from Oregon.

Mr. John W. Riley: From Oregon.

The point is, Mr. Justice Clark, General Motors wants us to discount and to disregard entirely instate activities of these people from out-of-state.

We submit that it's not just the instate activity of the instate residence but also instate act.

We can also consider and should consider instate activity of non-resident personnel.

And it can't be totally disregarded just because they happen to have their office across the river in Portland.

And all of these activities lend themselves and are part of this wholesaling process.

And they all have contact with the sales through the extent, they all -- meaning these activities, all have contacts with the ultimate objective of consummating sales and -- and are all related to the wholesaling process and are all instate activities.

The significance of this dealer agreement, the dealer selling agreement or contract, call it what you will, and Mr. Barnes refers to it as having been accepted and executed out -- out of the State.

But the significance of it is, is it by its very nature, it has to be performed in the State of Washington, and it is administered principally within the State of Washington.

And now, it's true, of course, if the dealer goes down to Portland and sits down on the zone manager's office, which they frequently do, well, we can't purport to tax that.

And we're not concerned about that, we're concerned only with those acts that are performed within the State.

So far then, instate personnel who reside there and out-of-state personnel who frequently stay, incidentally in terms of population, this out-of-state personnel would come in the State of the zone that was described by Mr. Barnes that population wise, half of the population of that area is in the State of Washington, so that it might be concluded that most of those people spend proportion amounts of their time in the State.

Of course, that isn't exactly true either but their responsibilities and their efforts to the extent that they are performed within the State would run in that proportion to the State.

Unknown Speaker: (Inaudible)

Mr. John W. Riley: Many of them are in retail dealerships, Your Honor, and many of them are in hotels.

They -- it depends upon the type of the showing if its -- one of the record -- discussions in the testimony was that it if it say new cars showing while they will have them in two places within the State, sometimes, some of the dealers within the State will go down to Oregon.

There will be training sessions for dealer mechanics maybe in Oregon and maybe in the State.

And -- and many times it's within dealers' place of business.

There are many times there are meetings within a district so that the dealers or the salesmen within a district, attend a sales training session within a district.

Unknown Speaker: (Inaudible)

Mr. John W. Riley: There are most of the times, were no -- were no fixed places.

No, Your Honor.

Now, we have a number of other divisions of the General Motors organization which do have physical facilities within a state.

We were unable, at the time of trial, to amplify their activities and to develop the significance of those activities with respect to the activities of the three divisions that we have here, several of them were described, one is General Motors Acceptance Corporation, one is Motors Insurance Corporation, one is Motors Holding Division, one is United Motors Service Division, and I shouldn't have said Motors Insurance Corporation or Motors Holding Division that this because it never had an office within the State.

But it does come into play because in the process maintaining and developing this retail dealer organization, occasionally what is known in the trade as an "open point" will occur.

And it's necessary to get a dealer in there to occupy that geographical area and to obtain, using the terms of the trade again, they're share of the market which General Motors thinks it ought to have or the Chevrolet Division of General Motors or whatever the case might be.

And during that -- at the time of the deposition of Chevrolet, Pontiac and Oldsmobile people, from one to three dealerships, were being financed by a Motors Holding Division of General Motors and the -- that works by -- Motors Holding Division holding about 50% of the stock, I presume 51% of the stock of these particular dealerships to assist it in its financing and to assist it to become eventually, I presume, independent but another effort which can hardly be not essential, certainly is directly related to the consummation of wholesale transactions.

Now, returning to a moment to this other --

Justice Byron R. White: (Inaudible) -- if these -- if these representatives did not live in the State of Washington, all lived in Oregon and just went into Washington and came back, and I suppose you'd make the same argument, wouldn't you?

Mr. John W. Riley: I would, Mr. Justice --

Justice Byron R. White: Yes.

Mr. John W. Riley: -- White, because --

Justice Byron R. White: And will you make the same argument to all State over in Portland and did it by phone?

Mr. John W. Riley: Well, perhaps, not.

At some point, you have to exceed the minimum, say of Nippert versus Richmond.

In its brief, General Motors really wants to characterize its activities as occasional forays into the State of Washington.

And if you don't exceed that minimum, well, presumably, we'd be precluded from taxation by --

Justice Byron R. White: And how many -- how many --

Mr. John W. Riley: -- by that.

Justice Byron R. White: -- Pontiac's are sold in Washington in the year it is supposed?

Mr. John W. Riley: I'm -- I'm sorry, I wouldn't have any idea as to the --

Justice Byron R. White: But you --

Mr. John W. Riley: -- numbers, Your Honor.

Justice Byron R. White: -- but you are suggesting though that the entire gross income from the wholesale sales of Pontiac must be attributed to the State of Washington as having occurred in the State of Washington and subjected to your tax by the activities of three people.

Mr. John W. Riley: Of -- of three resident personnel?

Justice Byron R. White: That's all.

Mr. John W. Riley: At least three --

Justice Byron R. White: That's all, isn't it?

Mr. John W. Riley: Oh, I -- I insist.

Justice Byron R. White: I'm talking about Pontiac.

Mr. John W. Riley: Oh, I'm talking about Pontiac also.

Justice Byron R. White: I'm not talking about Chevrolet or anybody else, its Pontiac.

Mr. John W. Riley: I'm talking also about Pontiac.

In addition to the three resident personnel of Pontiac, we have at least three non-resident personnel who come in from the Portland zone office, and we have other contributions made by other divisions of General Motors to which I will now direct myself.

That, I believe, is systematic and continuous enough to meet the Nippert versus Richmond rule.

Just those first six individual as I mentioned, and I'll admit that it is very, perhaps, close to the line.

But it is systemic and it is continuous and it is effective and it is necessary and essential to the consummation of the sales by which the tax is measured.

But there are other contributions as well that I don't think should be discounted.

For instance, what could be --

Justice Byron R. White: Why do you it's necessary to the consummation of the sales so far as you can know the sales that have taken place anyway?

Mr. John W. Riley: If a sale is consummated or is made to a resident of the State of Washington which with those activities had nothing to do, it will not be included in the measure of the tax.

If --

Justice Byron R. White: So that -- if -- if General Motors could show that these three -- and none of these three -- of these six people ever visited or talked to a particular Pontiac dealer during the year, you would not include those -- those sales to that dealer, is that it?

Mr. John W. Riley: I'm afraid we couldn't, in that example.

If -- if Pontiac made a fleet sale of 100 automobiles to a particular corporation and -- it was conducted all in Oregon or all in Detroit, we couldn't include those 100 automobiles in the measure of the tax and would not.

This is established by the Norton decision and is established by Field Enterprise and is established by the Goodrich case and the Horsman case.

Excuse me, Your Honor.

Chief Justice Earl Warren: (Inaudible) would you -- would you finish that.

You're starting to tell us some additional factors that were in this case.

I was interested in that.

Mr. John W. Riley: Additional instate activities of other divisions which are essential to and are -- the maintenance of this operation and are essential to the acquisition of General Motors' share of the market as it's -- for instance, what can be more essential than the actual financing of the merchandise on a dealer showroom floor?

Justice Tom C. Clark: (Inaudible)

Mr. John W. Riley: Those activities of General Motors Acceptance Corporation to the extent that it's measured by its income from financing or tax, to be sure, Your Honor.

We are submitting, however, that these efforts of these other divisions, even United Motor Service Division, even the Parts warehouse, all contribute to the development and the establishment and the acquisition of its share of the market and in the end run, the consummation of this wholesale sales by which the tax is to be measured.

United Motor Service only had one operation.

The Parts Division warehouse I believe had 17 to 20.

It varied from year to year or maybe it goes as high as 28.

But the very existence of that Parts Warehouse within the State of Washington and made it -- able -- made General Motors able to develop public confidence in the products, to develop reliance of the dealers, to develop the effectiveness of the dealers and to develop the very effectiveness of the efforts of these gentlemen who were residents of and were engaged entirely inside the State of Washington.

Justice Tom C. Clark: (Inaudible)

Mr. John W. Riley: This warehouse has only so-called "fast moving parts", Mr. Justice Clark, that which had to be really and able and more centrally located.

Another Parts warehouse is located in -- well, those for which there's a greater demand on a higher rate of turnover I believe, sir.

Justice Tom C. Clark: (Inaudible)

Mr. John W. Riley: And of course, I don't want to add any confusion for the -- the question here by suggesting that there's any question as to the distribution of parts out of that Parts warehouse.

General Motors, as Mr. Barnes I believe has stated, pays its tax with respect to sales from the Seattle warehouse, parts that move through the Seattle warehouse to its ultimate dealer.

We submit, however, that the efforts of the individuals, district managers included, justify and the contributions made by the Seattle parts warehouse, justify the inclusion in the measure of the tax of sales out in Portland warehouse.

I'll develop that a little bit later when we approach the question of the measure of this tax.

Justice Tom C. Clark: (Inaudible)

Mr. John W. Riley: Well, the Cadillac division, I don't know that it's any different the -- than -- than this one here, Your Honors, but I -- I really can't say.

I believe it's probably be quite similar to Pontiac and Oldsmobile, probably, a little smaller organization.

Justice Tom C. Clark: And that is in some way (Inaudible)

Mr. John W. Riley: That's -- that is true but we don't have any sales by the Cadillac Division involved in this particular case.

I don't know whether they're paying the tax or have paid the tax or -- or just what the question -- problem is, if there's any.

Unknown Speaker: (Inaudible)

Mr. John W. Riley: It is the same corporation, yes, Your Honor.

Well, the summation under this factual approach that I've tried to make, if the Court please, is that when all of these activities of General Motors personnel inside the State of Washington are considered in the light of these physical facilities described in Exhibit 13, even though they may have been independently and they do operate substantial independent of the three divisions with which we are concerned.

But the whole gamut of this activity indicates a systematic and continuous course of conduct.

And the question we have to approach is whether or not that gamut, if you will, of instate activity is immune from any kind of state taxation.

I -- I'd like to begin with this premise and then I should like to direct the Court's attention then to the question of whether the measure is by its nature offensive constitutionally and then consider the remaining due process and constitutional questions suggested by Mr. Barnes.

One preliminary problem, Mr. Barnes touched only very lightly on it in his discussion but it is in his brief, and that's the problem of the characterization of this particular tax.

The tax is a tax on persons or corporations for the act or the privilege of engaging in business activities.

In his brief, counsel invokes the decision of this Court in Spector Motor Service versus O'Connor and in which this Court found that a tax placed -- the -- the tax there was placed unequivocally upon the corporation's franchise for the privilege of curing on what the Court described as exclusively interstate transportation.

And they said, Justice Frankfurter I believe said that the tax by the state court's own characterization impinged upon an unconstitutional channel.

And he observed that the State wasn't precluded from opposing upon activities or aspects of the business within the State unlike the privilege of engaging an interstate transportation.

Justice Hugo L. Black: Mr. Riley, I -- I gather you -- no part of the States provide upon a set of power to levy this type of dependance upon the fact that there are, although for other division of General Motors, actual opposites of General Motors in the State of Washington.

Mr. John W. Riley: We've approached in both manners, if the Court please.

We -- we are willing to approach -- approach it from this standpoint that -- you see this local store argument is -- is actually separate from the question of characterization.

I think Mr. Barnes' real argument is that in order to include these sales in the measured tax, you have to have a local store to which those sales are channeled or funneled before it's constitutionally proper to measure the tax by the such amounts.

We believe that that isn't the proper test if the question is -- is whether or not, the nature and extent of the instate activities and that then whether or not the sales are -- are result thereof.

Justice William J. Brennan: (Inaudible)

Mr. John W. Riley: Yes, they are Your Honor.

Justice William J. Brennan: (Inaudible) -- and what constitute instate activity upon the location in the State of Washington of other General Motors offices, unconnected with these particular divisions.

Mr. John W. Riley: No, we don't.

We -- we do assert and do respectively submit that their existence there does contribute to the development of this market and to the conduct to these wholesaling activities and to the extent that they do contribute that it is instate activity which maybe taxed and maybe measured in this manner.

Justice Byron R. White: But if Pontiac, for example, had no one in -- in Washington and no one working out of Oregon network in -- in Washington, it was all done by mail or by telephone (Voice Overlap) -- in fact --

Mr. John W. Riley: (Voice Overlap)

Justice Byron R. White: -- if Chevrolet had an office and the Chevrolets were taxable business, that wouldn't mean Pontiac was.

Mr. John W. Riley: They were -- that's -- no, that's right.

Justice William J. Brennan: That's the second --

Mr. John W. Riley: There would be no --

Justice William J. Brennan: -- that's the second question, isn't it?

Whether there's any taxes between the instate activities and the wholesale.

Mr. John W. Riley: That's right.

Justice William J. Brennan: That's the second question.

Mr. John W. Riley: The first question.

Justice William J. Brennan: I'm still -- I'm still -- are you now saying that indeed, the State of Washington does rely upon the presence in the State of Washington, of other offices which have some functions in respect of the sales of Pontiacs -- by the wholesales of Pontiacs and Chevrolets whatever the other thing is.

You are relying impart on that?

Mr. John W. Riley: I will say we're relying impart.

I don't think it's essentially on --

Justice Byron R. White: Where they -- where they can actually contribute to these sales like the financing office.

Mr. John W. Riley: Yes.

Justice William J. Brennan: Well, my -- why --

Unknown Speaker: (Voice Overlap) the parts office, wasn't it?

Mr. John W. Riley: Yes, it would, Your Honors.

Justice William J. Brennan: Well, if you're doing that, why doesn't Norton?

On the first question on the instate activities, lying aside for the moment the next is problem.

Why doesn't -- why doesn't Norton?

Mr. John W. Riley: We think that Norton and Field Enterprise both supports.

Justice William J. Brennan: Rule in your favor in another element of the case.

Mr. John W. Riley: Very definitely.

Justice Tom C. Clark: (Inaudible)

Mr. John W. Riley: No.

Justice Tom C. Clark: -- for GMAC separate corporation.

Mr. John W. Riley: It is.

It is a separate corporation.

Unknown Speaker: If it isn't so (Inaudible)

Mr. John W. Riley: Well, that raises an interesting question.

One of the cases cited by Mr. Barnes was Spector -- Scripto Incorporated versus Carson, that's a Florida case, in which independent contractors imputed presence to a corporation.

Certainly, if it were not a wholly owned subsidiary and were only a division, I could impute it.

So I see no reason why the activities of the wholly owned subsidiary even though it's incorporated shouldn't also be imputed and shouldn't also contribute.

Unknown Speaker: (Inaudible)

Mr. John W. Riley: Well, true, that was a sales tax question and -- however, these two imputing presence through an independent contractor certainly bares analogy to that question.

Unknown Speaker: (Inaudible)

Mr. John W. Riley: Parts were analysis in Seattle --

Unknown Speaker: (Inaudible)

Mr. John W. Riley: -- in Seattle, Your Honor.

Unknown Speaker: It serves the State.

Mr. John W. Riley: It serves the State.

It also serves other -- other -- I think Alaska and parts of Idaho and Montana.

Now --

Unknown Speaker: (Inaudible)

Mr. John W. Riley: United Motor Service Division, Motors Insurance Corporation had three offices I believe and General Motors Acceptance Corporation.

Unknown Speaker: (Inaudible)

Mr. John W. Riley: United Motor Service, as the transcript, shows has to do with making warranty adjustments on accessories, automobiles and supplies parts and service to parts, accessories I mean.

Unknown Speaker: It is a division.

Mr. John W. Riley: It is a division, yes.

It is a division.

Unknown Speaker: (Inaudible)

Mr. John W. Riley: Parts -- the parts division.

Now, the parts division is a little bit confusing awhile because they are actually serviced by the district managers and the parts and accessories personnel for the particular division by the Pontiac, Oldsmobile and Chevrolet Divisions.

And there -- the efforts on -- and the sales of some of these parts actually proceed from the activities of those people in administering those portions of the dealer selling agreement which require the dealer to maintain its balance inventory program which we have addressed ourselves earlier.

Unknown Speaker: (Inaudible)

Mr. John W. Riley: Yes, Your Honor.

Returning just -- just for a moment on Spector, and I don't think it deserves anything else, this -- this question of characterization of the tax and it was -- General Motors can persist and this relates to our disagreement with them over characterization of the tax which we have discussed in our brief but they persistently attempt to classify the -- our tax as something like a tax on unapportioned tax on gross receipts from interstate commerce or a tax on the privilege of doing things done almost exclusively outside the State.

And we just insist that the Washington courts' characterization of the tax that it is a -- a tax on -- after a privilege of engaging an instate activities has to stand and we think it wasn't in fact established and is established by this Court's affirmance of the States Supreme Courts decision in Field Enterprise, as well as in Norton.

This gamut then of local business activity by which we've been discussing engaged in within the State by this General Motors personnel, Pontiac, Chevrolet and Oldsmobile with the assistance of these other facilities and personnel of other divisions is -- is all of that, in a nutshell, immune from any kind of state taxation and I -- I asked the Court to consider that question preliminary and then I would like to address myself to the measure question.

Initially, certainly, there is, I don't think it can be denied, an incident of state taxation and that it is not a pure interstate commerce or interstate commerce per se in the nature of Nippert versus Richmond.

And the reason being, as I have stated early that this is a systematic and a continuous course of conduct and it results in a large volume of business.

And again, I think that Field Enterprises certainly establishes the fact as does Norton that it's not an -- so -- so much a part of interstate commerce that -- that it is immune.

So there's a taxable incident.

Now then, is the measure of the Washington tax somehow make this tax or the manner which it is operated repugnant or is it put it outside the pail of this various constitutional limitations?

I think, it should be noted that the measure of the tax is the same for all wholesalers doing business in the State of Washington.

This is shown by Goodrich.

The measure results in a tax, if you please, which is proportional to the results of this sales efforts and this wholesaling activities engaged in within the State as contrasted to the situation in Nippert versus Richmond, the flatfeet situation.

And as I've mentioned earlier and as illustrated by our State Supreme Court's decision in the Goodrich Rubber case as well as Norton and Goodrich, the State Supreme Court applied this -- diligently, I might add, this Court's decision in Norton.

So that the measure of the tax, and we -- as we said earlier, excludes any transactions or sales, if you will, to a Washington customer with which the tax payers' instate activity had nothing to do.

I think this is made abundantly clear by Goodrich.

Justice Hugo L. Black: (Inaudible)

Mr. John W. Riley: Well, Your Honor, you mean in all of the tax here?

Justice Hugo L. Black: Yes.

Mr. John W. Riley: Actually, not.

Justice Hugo L. Black: That made -- that made an indication over the amount (Voice Overlap) --

Mr. John W. Riley: No, Your Honor, we are able to agree that if --

Justice Hugo L. Black: That it's out of proportion to the -- to the -- whether the State had a right to tax to them.

Mr. John W. Riley: Well, that's -- that's counsels due process argument that it is out of proportion to the benefits which the State is conferred.

Justice Hugo L. Black: (Voice Overlap) has been -- did the Court find how much, regardless of the name and regardless of the method of taxing, what was found with reference to that being a fair tax along with all the other taxes?

Mr. John W. Riley: Well, the State Supreme Court has held and -- and did declare in their review that the -- the tax, this is a confusing measure of the incidence, but the tax was reasonably related and they disposed of counsel's contention that it is -- does not bare reasonable relationship in that manner.

Does that answer you question, Your Honor?

There --

Justice Hugo L. Black: But I think it does -- some of our --

Mr. John W. Riley: That is the due process.

Justice Hugo L. Black: -- some of our cases have said that so long as the -- although this has been a deviation of some minor respects, so long as the entire tax imposed on the company doing business in the States is not out of proportion to what is a fair and just approximation points activities of the State, not to be subside because of the label quite a bit fair or the --

Mr. John W. Riley: I think that's right.

Justice Hugo L. Black: -- given thoughts of the imposition of the tax with some respect.

Mr. John W. Riley: That -- that is our view.

Justice Hugo L. Black: The litigation has no -- I -- I found no direct challenge to the amount of the tax in connection with all of -- and other taxes imposed against General Motors in --

Mr. John W. Riley: All of the tax --

Justice Hugo L. Black: -- connection with the right of Washington to impose a tax on the company or to its activities.

Mr. John W. Riley: They -- they assert, first, that the tax is on interstate commerce and secondly, they assert that all of these sales are out-of-state or not related to a sufficient quantity of instate activity and don't --

Justice Hugo L. Black: That --

Mr. John W. Riley: -- pass through a local store.

Justice Hugo L. Black: -- that's a question of fact, is it not, that -- whether it's related to inter -- intrastate activities or interstate?

Mr. John W. Riley: That's true, but also -- also the question of law.

Let me address my --

Justice Potter Stewart: There -- there is an attack on the amount of this tax very clearly by the (Voice Overlap) --

Mr. John W. Riley: They -- they assert that the tax -- none of the -- none of these transactions, Your Honor, that General Motors is --

Justice Potter Stewart: No, no, not the assessment attack on the amount of the taxes, I understood it that -- that I was a -- it's a due process attack that the -- that the amount of a tax bares no relationship whatsoever to the kind or amount of business done as a whole (Voice Overlap) --

Mr. John W. Riley: Well, that's true.

Yes Your Honor.

Justice Potter Stewart: -- of the State.

That's a directive attack upon the amount of the tax as such.

Mr. John W. Riley: I'm sorry, then I misunderstood Justice Black's inquiry.

Justice Hugo L. Black: I must fight the difference that I think, I'm not sure, maybe possible and you can argue that the tax imposed by a certain purpose is too much for that particular purpose.

But there's also a question and had been treated in some cases, whether you take that tax, add to it all the other taxes of General Motors or a company as a whole.

It is more than the State's entitled to impose for all the activities the company engages within a State.

Mr. John W. Riley: Well, I don't understand that to be raised here, Your Honor.

The one that Mr. Justice --

Justice Byron R. White: Yes.

Mr. John W. Riley: -- Stewart raised is the argument.

Now, one other thing regarding this measure, I think it's a -- while we contend that those sales which are related to these instate activities can be -- be a proper measure to tax.

The alternative is, and I think this is made quite clear by this Court's decisions in Gwin, White & Prince and Henneford, is that no other State may measure a tax by the same measure and by the gross proceeds of those sales.

And Mr. Barnes' statement to the contrary, I just not -- I just do not believe will stand examination because Gwin, White & Prince and Henneford and other cases before and since make it quite clear that no other State can subject General Motors to a wholesaling activity.

Gwin, White & Prince and Henneford was a case from the State of Washington involving the same tax.

Only it was with respect to outgoing sales by a producer state.

Justice Byron R. White: (Inaudible)

Mr. John W. Riley: Simply because -- it's one of the reasons Gwin, White & Prince and Henneford says they cannot.

Justice Byron R. White: Well --

Mr. John W. Riley: They can --

Justice Byron R. White: (Inaudible)

Mr. John W. Riley: Not in the light of Gwin, White & Prince and Henneford, Your Honor.

Justice Byron R. White: (Inaudible)

Mr. John W. Riley: Well, at -- no it isn't.

I'll -- I'll -- they want for one good reason, wholesaling --

Justice Byron R. White: (Inaudible) -- first then you wouldn't be here.

You wouldn't try to attempt to put your tax.

Mr. John W. Riley: Well, Oregon can no more -- Oregon can no more measure a tax by sales to Washington customers than we can measure a tax by sales to Oregon customers, a wholesaling tax.

Justice Byron R. White: Well, the sales take place in the State of Oregon.

Mr. John W. Riley: Well --

Justice Byron R. White: They take place in --

Mr. John W. Riley: -- that's a question of (Voice Overlap) --

Justice Byron R. White: -- takes place in the State of Oregon?

Mr. John W. Riley: Well, then we have confused the question of measure with instance, and if you please, Mr. Justice White, because then you're assuming that the tax is a tax on the sales and not a tax on the activities.

Justice Byron R. White: But no, I'm -- I'm not saying that the Oregon tax would be on the privilege of making wholesale sales in the State of Oregon just like you say, precisely as you say.

Mr. John W. Riley: But constitutionally, you -- we cannot, the State of Washington cannot measure a tax on General Motors by sales to any other State and the State of Washington by the same token the State of Oregon may not measure a sale with respect to activities carried on there in -- by General Motors in Oregon, may not measure it by sales to Washington customer -- by the gross proceeds of sales.

Justice Byron R. White: You're -- you're saying that if these sales that you have taxed, really were sales in the State of Oregon, you're out of business.

Mr. John W. Riley: If it was a tax on sales, we would be out of business.

Justice Byron R. White: (Voice Overlap) of such measure.

Mr. John W. Riley: Alright.

If it were to -- to be -- but sales to Oregon customers, if there are sales to Washington customer consummated in Oregon, we will contend that we have a right to tax them, to measure the tax by them and not to tax the sales.

Justice Hugo L. Black: But this Court (Inaudible) imposition of tax on an activity and the right to -- how much you can get?

Mr. John W. Riley: Yes, it --

Justice Hugo L. Black: And measuring it by some -- some standard that you look behind the standard to see whether or not there's more tax than you have it by their president.

Mr. John W. Riley: Well, that -- that is correct, Your Honor, and that's the reason I've dwelt to this length, the length that I have on this caution of measure.

And I think it's -- it's quite important to -- to note this distinction between measure and --

Justice William O. Douglas: Washington to levy sales tax on the Oregon sales.

Mr. John W. Riley: No, Your Honor.

Justice William O. Douglas: And Oregon could.

Mr. John W. Riley: And Oregon could if the sale we're consummated in Oregon.

Oregon could not because the actual sale isn't consummated there either and this particular case which is unassigned.

Now --

Justice William O. Douglas: Well the court -- if Washington can't levy a sales tax, I can -- you say they can do the same thing with this way.

Mr. John W. Riley: Well, this is not a sales tax.

We are measuring and -- and it's just that needed distinction.

It is a conceptual difference to be sure but as one which has been recognized by this Court in many cases.

We are taxing business activities.

We are measuring the tax by the sales which result from those business activities.

But sales only to Washington customers and not including sales to anybody else and not including sales with which those activities had nothing to do.

I think this is a -- this bares this question in Mr. Barnes' discussion earlier of the market state concept.

And he describes within his brief as, and did orally this morning, as something like when products are sold by out-of-state manufacturer to residents in the State, then that alien manufacturer has taken money out-of-state and so you should be a part of put some money back in.

We don't think that the lower court had anything the kind in mind.

If it did, then I can't determine it by reading the opinion, but if it did, it might well had considered the market state concept that Justice Rutledge announced in his concurring opinions in Freeman and Hewit and the International Harvester versus the Department of the Treasurer.

His -- he was speaking there with the reference to difference types of taxes but the analysis still applies and he saw three alternatives in this particular situation, which -- which I note that you seemed to be concerned, that first, you could prohibit all taxes unless they were apportioned or you could allow either the producer state or the market state, but not both, or you could go along determine that factual in each case.

And he said, in those opinions, he said, "I think the solution most nearly in accord with the Commerce Clause that once most consistent with its -- at least most consistent with its purpose and least objectionable for producing other evils would be the vested power tax in a state of market subject to the power of the forwarding state, also the tax by allowing credit to the full amount of any tax paid or do at the destination."

Now, when Justice Rutledge was speaking, Norton and Field hadn't been decided and I think it would be well in this particular case if this Court did specifically invoke what Justice Rutledge was saying there, although we're not talking about taxing sales.

As a matter of fact, this Court may have -- we believe that you already have done so in view of the decisions in Norton and Field.

Because in the first place, the producer states, because of the doctrine of Gwin, White & Prince and Henneford in subsequent decisions, cannot measure the tax by sales towards any customers any more than we can measure tax of -- GM by it's sales to Oregon customers.

And the third alternative would be a little bit intolerable for the Court.

Now then, a question has been raised about the --

Justice Byron R. White: (Inaudible) by its total of manufacturing sales, including the sales to Washington customers.

Mr. John W. Riley: It may impose a tax on manufacturing quite literally.

Justice Byron R. White: Measured by --

Mr. John W. Riley: Measured by gross receipts.

Justice Byron R. White: -- measured by gross receipts from sales to Washington customers.

Mr. John W. Riley: Measured by gross receipts to Washington customers.

Justice Byron R. White: I thought that's what you said couldn't be done.

Mr. John W. Riley: The tax is on manufacturing and I think they have a right to tax manufacturing and I think it -- that that's been established, American Manufacturing versus St. Louis.

By the same token --

Justice Hugo L. Black: (Inaudible)

Mr. John W. Riley: I beg your pardon?

Justice Hugo L. Black: Does American Manufacturing Company against St. Louis has been the rule ever since, doesn't it?

Mr. John W. Riley: Sure, they --

Justice Hugo L. Black: Except for the possibly slight deviation in Spector that you don't look to see that the object just to see whether the amount of the tax, however it is measured, is unconstitutional.

Mr. John W. Riley: With respect to due process.

Justice Hugo L. Black: That's right.

Mr. John W. Riley: With respect to due process.

They are manufacturers but they're also wholesalers.

And if manufacturing is separable from interstate commerce and can be taxed, so can the wholesaling process or instate business activities within the State and Norton and Field clearly established that.

Justice Byron R. White: (Inaudible)

Mr. John W. Riley: They cannot.

First, we're not taxing sales.

No, I -- I -- fairly, I'm not making myself clear, Mr. Justice White, that --

Justice Hugo L. Black: You're measuring your tax by the amount of the sales.

Mr. John W. Riley: To Washington?

Justice Hugo L. Black: And it is to say that what you were arguing here is that supposed, the tax as measured that way is $1000, instead of that, you have said $1000, you were saying that its constitutionality is determined, you are -- you determined its constitutionality by the amount of tax sales, not by the particular means to take to measure it.

Mr. John W. Riley: I -- well, I -- on the due process question, yes.

Justice Hugo L. Black: That's what I'm talking about.

Mr. John W. Riley: Well, Mr. Justice White is on this Interstate Commerce Clause.

Justice Hugo L. Black: So what about the burden on -- on -- the burden on interstate commerce?

Mr. John W. Riley: I don't see a burden on interstate commerce.

Justice Hugo L. Black: But, suppose if that is the question at all, the burden on interstate commerce, which is the theory of the Commerce Clause, are you to determine that burden by the type of -- of formula used to collect the tax or by the amount of the tax in effect to the collector?

Mr. John W. Riley: I think you determine it by, (a) saying what the incident is it -- is it a local incident?

(b) You did -- is the measure fair?

Will it discriminate against --

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

Mr. John W. Riley: -- interstate commerce?

And (c) is the burden of a tax disproportionate to the benefits conferred by the State?

Justice Hugo L. Black: That's what I was saying.

Mr. John W. Riley: In that order.

Justice William J. Brennan: But Mr. Riley, I take back Mr. Justice White's question to you.

Missouri may impose a tax on manufacturer measured by the amount of the wholesale.

Mr. John W. Riley: No, measured --

Justice William J. Brennan: No?

Mr. John W. Riley: Measured --

Justice William J. Brennan: Measured?

Why not?

Mr. John W. Riley: Well, alright, measured by the whole -- the proceeds of sale, yes.

Justice William J. Brennan: That's exactly what I'll do.

Justice Byron R. White: That's right.

Justice William J. Brennan: Alright.

Now --

Mr. John W. Riley: And I see --

Justice William J. Brennan: You say Washington -- Washington may impose a tax measured by the same proceed.

Mr. John W. Riley: It may --

Justice William J. Brennan: Right.

Mr. John W. Riley: -- under Norton and Fields.

Justice William J. Brennan: Why then can't Oregon?

Don't talk about now tax on sales.

Why cannot Oregon by reason of the activities in Oregon impose a tax measured by the proceeds?

Mr. John W. Riley: It cannot tax sales to --

Justice William J. Brennan: I didn't suggest that.

Mr. John W. Riley: It cannot tax business activities in the State measured by sales to a Washington customer.

Justice Byron R. White: But St. Louis can.

Mr. John W. Riley: It is taxing manufacturing.

Justice Byron R. White: Well, why if this --

Mr. John W. Riley: Oregon can't tax manufacturing.

Justice Byron R. White: We're taxing --

Mr. John W. Riley: Washington can't tax manufacturing.

Justice Byron R. White: We're taxing the activity -- we're taxing whatever the business activities, Oregon would tax the -- the business activities that -- that are carried on to State of Oregon.

They've got a zone office there, they do all sorts of things in Oregon.

And certainly, you couldn't say, for example, that the zone office contributed not at all to the sale (Voice Overlap) --

Mr. John W. Riley: It has contributed something.

But because it would -- you would including -- if you're including in the measure sales to the State of Washington, then we're squarely within the holding of Gwin, White & Prince and Henneford and you can't do it.

And that --

Justice Byron R. White: I -- I suggest --

Mr. John W. Riley: -- this is a burden on interstate commerce.

Justice Byron R. White: I suggest, Mr. Riley, that your colleague in Oregon would not agree with you.

Mr. John W. Riley: Well, perhaps not.

The -- the point is that we have two different incidents, two different processes and two different States.

Now, as to any manufacturer in the State of Washington, the tax is identical to anybody in the State of Washington, as to wholesaling per se.

But in -- you can't tax this process in Oregon measured by sales to Washington.

You can tax if measured by sales to Oregon.

Justice William J. Brennan: You're not taxing the process.

You're taxing the activities, a tax based on the activities in Oregon measured by the proceeds.

Mr. John W. Riley: If that is so, then, sir, what is happening is --

Justice William J. Brennan: That's all that Washington do.

I don't know why you (Voice Overlap) --

Mr. John W. Riley: You're taxing in -- well, I've missed the point here.

We're taxing instate activities.

Justice William J. Brennan: And that's all our argument (Voice Overlap) I suggest.

Justice Byron R. White: It's our argument.

Mr. John W. Riley: That they cannot tax if measured by sales to Washington customers.

They cannot measure their tax by sales to Washington customers.

Justice William J. Brennan: (Inaudible)

Mr. John W. Riley: We can because the act related to the activities engaged within the State by the --

Justice William O. Douglas: (Inaudible)

Mr. John W. Riley: Oh, I believe it --

Justice William O. Douglas: (Inaudible) -- engaged in the business of making sales of wholesale, is that right?

Mr. John W. Riley: Yes, Your Honor.

Justice William O. Douglas: And then the amount of the tax is one quarter or 1% of the gross proceeds of those sales.

Mr. John W. Riley: That's right and asking --

Justice William O. Douglas: How it -- does any different from a sales tax?

Mr. John W. Riley: Oh, it's been -- it's been acknowledged and it is established to that in -- in a long line of cases that it is not a sales tax because the incidents in sales taxation fall, if the tax falls on the sale itself.

And -- and if you --

Justice William O. Douglas: But if they're just proceeds of interstate sales, I was just wondering what the actual difference is and why the New York sales tax is similar.

We held that that couldn't be placed upon the out-of-state sales.

Mr. John W. Riley: That is right.

But the Court on the other hand has held that you can measure it by interstate sales and this was done in Field Enterprise certainly, and it was done in -- in Goodrich and it was done in Norton.

Justice William O. Douglas: Of course, inherently the Courts saved your -- your question by assuming that it might be done for a proper allocation to the activities in the State but there's no purported restriction here along that line, is there?

Mr. John W. Riley: Oh, well, it is -- it is and -- and to the extent that the State has limited its application and so declared it in their decisions to this Court's construct -- construction of the situation in Norton.

And -- and this is announced clearly in the Goodrich case.

Justice William O. Douglas: But still the tax is -- is one quarter or 1% of the gross proceeds of the --

Mr. John W. Riley: Of sales.

Justice William O. Douglas: -- of the sales.

Mr. John W. Riley: But sales related to and proceeding from those instate activities.

Justice Byron R. White: Why -- why is Norton (Inaudible) -- there's no doubt that the zone office there contributed somewhat to the sales that took place in Washington and Washington would attribute the entire value of the sales to the activities in Washington at the same -- at the very same time you admit and has admitted that the zone office in Detroit -- in Portland contributed something to the sales.

Mr. John W. Riley: Oh, yes.

Justice Byron R. White: And why shouldn't the -- why shouldn't the Oregon be able to -- to do so also?

Mr. John W. Riley: If it were to do so, it would be imposing --

Justice Byron R. White: It might (Voice Overlap) --

Mr. John W. Riley: -- measured by Washington.

Justice Byron R. White: -- it might apportion.

It might -- we only think our zone office contributes 25% of the value of these sales.

Mr. John W. Riley: Well, then we would have to overturn Norton, Gwin, White & Prince and Hennerford and the Field decision this Court -- which -- which this Court stated.

And I submit that in the analysis of those decisions makes our position quite logical and quite reasonable.

And it does not impose a burden on our case.

It does not discriminate against interstate commerce.

And you can only be said to be a double tax if we are forced to lump together manufacturing and wholesaling as one process and only one process.

Justice Byron R. White: In Norton -- in Norton, the -- the Illinois admitted the tax because the activities in the local office and the warehouse were deemed to be of decisive significance in the sales that may --

Mr. John W. Riley: Well, that -- that brings us to this precise and perhaps the most important question here.

Just exactly how does this work?

We contend that we have an ample quantity of local activity and we have physical facilities and then we have a continuous and systematic process that's subject to tax, so why can't we measure it by a gross proceeds?

Now --

Justice Byron R. White: But they are decisive.

Mr. John W. Riley: -- the question is, why -- all of this -- I don't think there's any doubt about that.

What you're saying is and this is one of counsel's argument is that the sine qua non of this taxation is going to be whether you have this local store through which the sale is processed, that this order for this particular sale has to go through the local store or has to be filled from the store.

Well, this is -- this brings us to this point which is an important one I'd like to face right now.

I -- and I say, is it to be that which is what General Motors argues or shall the test be the nature and extent and scope of this local activity and its relationship to these sales which we would include in the measure.

It seems to me that that would be an arbitrary test rendering that you could have any amount of local activity in the State, have 10,000 people in there, it wouldn't make any difference if you didn't have a store which touched those sales somehow or those sales orders or had something to do with them or they wouldn't be taxable if you have to draw such an arbitrary line as that.

Justice Byron R. White: Do you -- do you suggest that the law is not that, a -- in an outside manufacturer is not taxable were all he does in the -- in the State is send the drummer to the State that brings back order in his pocket?

Mr. John W. Riley: If it is -- as in Nippert, occasional or an occasional foray in and out of the State, it wouldn't be difficult.

Justice Byron R. White: Well, the -- at least they got regular customers there.

The drummer goes around and calls on everyone up to twice a year and bring (Voice Overlap) --

Mr. John W. Riley: All we have to have more than Nippert.

We have to have substantial.

We have to have systematic and continuous operations within the State.

I think we have that.

I think we have vastly more than -- in Nippert or in any type of -- I think new have vastly more than in Field Enterprises and in any of the taxable transactions in Norton.

We don't have this local store as we did in Norton to which the sales orders were processed.

Justice Byron R. White: Well, they had a warehouse too.

Mr. John W. Riley: Well, they had a warehouse, yes.

Justice William J. Brennan: But tell me, Mr. Riley, when -- when, in fact, there are activities in sweepstakes just -- it seemed to be the case here, what is your suggestive test which gives the power exclusively to Washington and precludes any tax based on the activities in Oregon by Oregon?

Mr. John W. Riley: It's --

Justice William J. Brennan: But where -- why the broad --

Mr. John W. Riley: -- it's the position taken by Justice Rutledge.

Justice William J. Brennan: No, no, what I'm -- what I'm trying to get is, to me, here, we have activities in two States which are productive ultimately of these wholesales to watch them and customers.

This is true, isn't it?

Mr. John W. Riley: I think this is true.

Justice William J. Brennan: Now, what I'm trying to get at, what's the test that says that only Washington may impose a test measured by the proceeds based on Washington activities and denies Oregon any right to impose the tax measured by any part of those cases?

Mr. John W. Riley: The test is that we are not taxing anything down in Oregon.

If we have substantial activity legitimately subject to taxation in the State of Washington, I don't think it can be argued really that they aren't doing anything which is not taxable somehow.

Justice William J. Brennan: No, but you --

Mr. John W. Riley: And if we measure --

Justice William J. Brennan: -- you -- I thought your argument was, in any event, that Oregon could not impose any tax based on activities in Oregon measured by the Washington proceeds, am I wrong about that?

Justice Byron R. White: You've said that three -- three (Inaudible)

Mr. John W. Riley: The test -- the test would be -- we don't have to be concerned with what they're doing in Oregon.

If the activities in Washington are essential to these sales, if they are substantial, if they are systematic and continuous --

Justice William J. Brennan: I -- I appreciate that.

Mr. John W. Riley: -- I don't know why we can't.

Justice William J. Brennan: And I understood you to say that by reason of this, Washington may impose a tax measured by 100% of these proceeds and Oregon may -- may impose no tax measured by any part of those proceeds.

Is that right?

Mr. John W. Riley: That's right.

Justice William J. Brennan: Well, I want -- what I'm trying to get at if you had 90% of this activity in Oregon and 10% in the State of Washington with the ultimate sales, of course, the Washington customers, would you make the same argument?

Mr. John W. Riley: I don't' understand your point, Your Honor, simply because -- if -- if it's all done in Oregon, we couldn't tax.

There wouldn't be anything in Washington that had any relation to Washington sales.

Justice William J. Brennan: 40% of it's done in Oregon and 60% is done in Washington, you'd say Washington.

Mr. John W. Riley: Certainly.

Justice William J. Brennan: Suppose it was 60% done in Oregon and 40% in Washington.

Mr. John W. Riley: I'd still -- I still say Washington as long as what was done in Washington is essential to the consummation of those sales and for one reason, Oregon can't.

It would then be a direct burden according to Gwin, White & Prince.

The -- the last question then was due process and I have to apologize for Mr. Malone, who has worked with me for four years in this case and we had hope to share the argument and we've nearly used their time on this due process, I think by the same token as follows that there is a proportional relationship and there is a reasonable relationship between the tax and the -- that is conferred or privileges, if you will, and conferred upon General Motors within the State.

If we analyze the tax, first, by considering the scope and gamut of this activity, I think it has to be conceded that there's something there that's taxable, certainly, isn't immune.

If you consider the measure and consider the fact that only the State of Washington can measure the tax in the manner that it has and consider also the fact that we don't purport to measure it by transactions with which those activities had nothing to do, there can be no burden and no more to the burden upon the State.

Everybody in Washington engaging in these activities pays the same tax.

Thank you, Your Honor.

Chief Justice Earl Warren: Mr. Barnes.

Rebuttal of Donald K. Barnes

Mr. Donald K. Barnes: Mr. Chief Justice.

A part from my friend here among other range on the relationship of certain past or prior decisions to the facts in this case, I think there's a very sharp difference between the facts in our case and those in Field Enterprises.

Field Enterprises is the publisher of the Encyclopedia Britannica and what they were doing was soliciting retail sales for that encyclopedia, which is a fairly expensive retail item, taking down payments, and so on, and doing other things at that local office and there were 140 some odd salesmen producing a total of $500,000 worth of business, contrast to that with the people that we have in Washington and millions of dollars have developed there.

And the case was treated as one because it was affirmed on the authority of Norton as a case in which all the transactions interstate, though they were in character, were tied in with an intrastate business in that local office that they had there.

Now, the counsel's reliance on Norton really surprises me because that's the best case there is on our side.

Norton, I -- I collaborated this retail store and warehouse, and they had many transactions which were clearly intrastate and which a tax apply.

They had other transactions which the court, lower court held were tax because they was -- they were, in one way or another, passed through and processed by that local office.

And this Court said, “Well, we're not going to disturb the judgment of the trial court because it's too high to separate these things out on those circumstances.”

But this Court said, “The purely interstate transactions which didn't touch that office could not be taxed.”

As a matter of fact, that office was connected with those two because that office had a corp of engineers who went around and advised their customers on the use of these complicated abrasive machines and so on.

But every transaction we have involved here is a Norton type of transaction.

It has no relation as the trial court found.

Finding of fact Number 25 in the record at page 20 -- 56 is to the effect that there was no relation between the transactions involved here and the other divisions to which Mr. Riley referred.

And incidentally, the evidence --

Justice William J. Brennan: (Inaudible)

Mr. Donald K. Barnes: Yes, Mr. Justice Brennan.

Justice William J. Brennan: And GMAC and the other two?

Mr. Donald K. Barnes: Yes, Mr. Justice Brennan, well, actually the -- the evidence with respect to GMAC and United Motors Service and Motors Holding, and so on was excluded by the trial court on the ground that it was completely irrelevant because there was no connection of this type.

So that's not a specific finding but that was the ruling on the exclusion.

Justice Byron R. White: Well, Mr. Barnes, do you now suggest that the -- the three Pontiac representatives in Washington, for example, contribute nothing at all to dealers, purchasers of Pontiac (Voice Overlap) --

Mr. Donald K. Barnes: Certainly not, that's their purpose.

That's why they're in there.

Justice Byron R. White: And it's -- it's a question of how much they contribute.

If they -- if they became of decisive significance, as in Norton, the activities of the local office was -- were a decisive significance, I suppose, then Norton is against you, isn't it?

Mr. Donald K. Barnes: No, Your Honor, because in Norton, that was an intrastate business, the conduct --

Justice Byron R. White: I understand that.

Mr. Donald K. Barnes: -- of which was essential to the interstate sales.

Justice Byron R. White: I understand that but nevertheless, there were -- attributed the Illinois where certain -- where certain sales from outside the State in the Illinois --

Mr. Donald K. Barnes: Right.

Justice Byron R. White: -- because the activities of the local office were of decisive significance in connection with those sales.

Mr. Donald K. Barnes: That's right.

Justice Byron R. White: Now, I would suggest that if your -- if there's been a particular situation and your Pontiac representatives, for example, were of decisive significance in generating purchases that Norton would be against you, whereas if they weren't, it would be in your favor.

Mr. Donald K. Barnes: Well, I wouldn't go that far because here we have purely interstate commerce which is not, in anyway, mixed up with the intrastate commerce.

However, the -- the situation which you suggest didn't in fact exist.

These people, of course, held that otherwise they wouldn't have been there but it would be awful -- going awful far.

Justice Byron R. White: I suppose you would -- I suppose you would say that your Pontiac representatives are in commerce, in intrastate commerce, they aren't some -- they are doing something and they're doing it in the State.

Mr. Donald K. Barnes: What they were doing was strictly interstate commerce, no intrastate commerce whatever.

Everything they did was in furtherance of a sale of normally be outside the State and then shipped them into the State, which most is interstate commerce.

I -- I've call it in our brief, I think not inadvisably extrastate commerce, nothing to do with the State of Washington except these people who were in there.

Chief Justice Earl Warren: (Inaudible) the whole situation?

Mr. Donald K. Barnes: If they had an office which had intrastate characteristics such as the zone officers we were discussing just before the recess.

And of course, we do pay tax on whether there is a zone office.

Justice Byron R. White: What do you -- what do you think tax (Inaudible)?

Mr. Donald K. Barnes: Exactly the same tax.

For example, the -- the Chevrolet's own office is now located in Seattle and taxes of the same tax were paid under the same transactions and the reason is that that zone office is there and it has some intrastate aspects.

So we --

Justice Byron R. White: What --

Mr. Donald K. Barnes: -- measure the tax by the entire business including interstate.

Justice Byron R. White: -- what are those intrastate aspects, Mr. Barnes?

Mr. Donald K. Barnes: I'm sorry, Your Honor.

Justice Byron R. White: What are those in -- intrastate aspects?

Mr. Donald K. Barnes: Oh, accept -- it receives and accepts orders and part of the business and it pedals materials which are used by the -- by the dealers in their own operations as distinguished in the wholesale sales that are involved in here.

And the -- the principle point is that there is a good big substantial office such that but it does also, in addition to this main intra -- interstate business carry on these few interstate transactions enough to bring it within the rule of Norton.

There's been some difficulty in -- on this Gwin, White & Prince question.

I think it's perfectly clear that if the State were to succeed in its argument here, it could do so only by overruling Gwin, White & Prince or saying something the Court has never said and perhaps, will not feel it's in the position to say which is that in dealing with this type of tax, which now is imposed on the vendor, not on the consumer, which is the type, Mr. Justice Rutledge talked about.

We can make a choice as between which -- between two States, one which will pay it and one which won't.

Now, Gwin, White & Prince said, “No State can impose this tax because if Washington could, so could New York," where the good were being sold.

If Washington could impose this tax, so could Oregon, just as Mr. Justice White has argued.

The -- the error in this tax is that it is an unapportioned tax.

After the decision of this Court in Gwin, White & Prince, the State of Washington fixed up this tax insofar as it applies to a service industry and Gwin, White & Prince was a broker, so that it is apportioned.

And now, they collect a tax from Gwin, White & Prince because they are not taxing a 100% of the gross receipts, which is what they are doing here.

Justice William J. Brennan: Long after they have paid their tax?

Mr. Donald K. Barnes: They amended it so that the -- the tax paid by a service industry, which is Gwin, White & Prince, they were a broker, is apportioned, instead of being on the 100% of gross receipts.

Justice William J. Brennan: What was apportioned?

Mr. Donald K. Barnes: What -- what was the apportionment?

Justice William J. Brennan: I'm sorry.

Mr. Donald K. Barnes: I don't --

Justice William J. Brennan: Did you say in Gwin, there wasn't apportionment?

Mr. Donald K. Barnes: Gwin, the -- the tax which was held invalid, it's the same tax in Gwin, White & Prince because it was unapportioned.

Justice William J. Brennan: Yes.

Mr. Donald K. Barnes: The State is now collecting from Gwin, White & Prince because it has changed that one section of its law to make the tax apportioned.

Justice William J. Brennan: Apportioned.

Mr. Donald K. Barnes: They've reduced the -- the percentage of gross receipts from 100 to something less.

I don't know what it is.

Unknown Speaker: (Inaudible)

Mr. Donald K. Barnes: This will -- I -- I don't frankly understand counsel's argument with respect to the nature of the tax.

And I -- I just can't see what difference it makes whether you call it a tax on an act or a tax on a privilege or a tax on a gross receipt or a tax measured by gross receipt.

It seems to me that constitutionally, as franchise tax for the privilege of doing interstate commerce and exclusively that.

And we find the assessments invalid because it is such a franchise tax and invalid because it attributes the tax to a minor local incident, thereby, exposing the entire commerce to multiple burdens and that's the thing that Nippert against Richmond says you can't do, is to breakup the transaction to little pieces and separately tax each piece, is invalid because of the exemption of the instate manufacturer or seller with the resulting double taxation of interstate manufacturing and selling and single taxation of the -- of the entire operation within the State.

Invalid because it reaches transactions outside the jurisdiction under both due process and the fundamental principle of the State is confined to its own territory.

And finally, invalid because it is, of all reason, proportioned activities within the State.

Now, the activities to which it must bear some reasonable apportionment are the activities of the people who are in the State and not to the things which go on in Washington.

And as Mr. Riley said, the dealer selling agreement is performed in Washington but is performed in Washington by the dealer, not by General Motors.

Everything that General Motors does in performance of the dealer selling agreement to which sell automobiles, buy back parts when the dealer goes out of business under certain circumstances, all those things are done in Oregon or California or Michigan.

So that we have to look at the dollar amounts involved or the dollar measure here and compare it with these people who run around, three of them for Pontiac located in the -- in the State and several more who come in on occasion, make your regular business and so on, but you add up all those activities and there isn't very much.

And you cannot, in looking at the measures, add-on to that the activities of these unrelated divisions because their activities already being taxed.

There isn't -- they're not on activity can be added to these activities to compare what the measure.

They've been taxed on their own account.

Justice Byron R. White: (Inaudible) should not attribute to itself the entire benefit of the credit for all of the sales in the part of the activity that goes into -- occurs outside the State.

Mr. Donald K. Barnes: That was precisely my point, Mr. Justice White.

Justice Byron R. White: And -- but would you therefore -- would -- would you say then if Washington cut its tax in half so that it's saved?

Mr. Donald K. Barnes: They have to cut it more than that.

Remember we have three -- Pontiac has three men in Washington and there are an awful lot of men in all together.

I think our payroll is 600,000 people.

Justice Byron R. White: Oh, I'd say, cut it -- made it -- then that's what exactly, in its present form, except it cut the rate down at one-tenth.

I mean if the rate was one-tenth of what it is now.

Mr. Donald K. Barnes: If it were actually, Your Honor, it might be something that we wouldn't care to litigate just because of the trouble but the principle would be exactly the same because we're talking about tax base and not rate.

It's the -- this fact that when we sell a $2000 Pontiac to a Washington dealer, they want to tax us on, no matter what the rate is, on $2000, instead of one -- some apportionment.

Justice Byron R. White: Well, really, what we're talking about is not -- not whether Washington is trying to grab it all but whether the amount they take out of General Motors' side is -- is somewhat related -- related to what -- what they do for General Motors or something standard like that.

Mr. Donald K. Barnes: That's simply close.

Justice Byron R. White: Is this really the -- what we're -- you wouldn't really wouldn't care how they did it, if you thought what they taxed you was a reasonable term.

Mr. Donald K. Barnes: That we pay unconstitutional taxes when the amounts aren't very big.

Justice Byron R. White: Yes.

Chief Justice Earl Warren: Mr. Malone and Mr. Riley (Inaudible)

Rebuttal of John W. Riley

Mr. John W. Riley: Mr. Chief Justice, may I also take up one of the questions involved in the first Interstate Commerce Clause problem.

Chief Justice Earl Warren: (Inaudible)

Mr. John W. Riley: Alright, thank you very much, Your Honor.

I maybe getting in to the meat grinder but I would like to get back to the questions presented by Mr. Justice Brennan and Mr. Justice White on this question of what we call the "preference problem", namely, tax allocation of taxing jurisdiction as between state of origin, state of market.

Now, perhaps the best way to illustrate our point, Your Honors, is to ask this question -- let's go to the facts in Norton and ask ourselves this question, supposing that the State of Massachusetts, you remember that Norton was located in Worcester and orders were accepted there and they were filled there, so far as the disputed transactions were concerned.

In other words, you had, putting it roughly, an awful lot of selling activity going back -- taking place back in Massachusetts.

Perhaps, so far as some transactions are concerned, even more than you had taking place in Illinois.

So, the question, which you, Mr. Justice White, asked about Oregon, could, in that case, have been asked about Massachusetts.

Should Massachusetts have been allowed in that case to have imposed upon the selling activities admittedly taking place there with respect to the transactions which are included in the tax base of Norton, should Mas -- could Massachusetts constitutionally or should it constitutionally be allowed to impose any sort of gross receipts tax on those selling activities?

And we submit, Your Honor, that the answer is no.

We submit, first of all, that it should not be able to impose as the state of origin, it should not be able to impose a -- gross receipts tax measured by all of the gross receipts nor for that matter, should the state of origin, in this case Massachusetts, to continue on with the Norton example, be allowed to impose even unapportioned gross receipts tax, with respect to the transactions included in the tax based in Norton because that would amount to what we admit is a very bad and an unconstitutional result, namely, double taxation.

That, Your Honors, is why we say that J.D. Adams versus Storen, that Gwin, White & Prince versus Henneford and particularly Freeman versus Hewit stand for the proposition that the state of origin, so far as gross receipts taxes on the selling process is concerned, should have their power cutoff.

Now, admittedly, it --

Justice William J. Brennan: (Inaudible)

Mr. John W. Riley: We say in view of Field and in view of Norton even if apportioned, yes, Mr. Justice Brennan.

Justice Byron R. White: But remember that Norton rule -- that the -- that the activities in the State of Illinois were decisive factor, decisive factor.

Mr. John W. Riley: Yes, I appreciate that, Mr. Justice White.

Justice Byron R. White: And whatever the activity is in Washington, if you're going to rely on Norton --

Mr. John W. Riley: Yes.

Justice Byron R. White: You must sustain if -- if -- as far as Norton is concerned, you must sustain the burden of saying that the activities in Washington were decisive --

Mr. John W. Riley: (Inaudible)

Justice Byron R. White: -- factor.

Mr. John W. Riley: Yes, we admit that, Your Honor, but let's also notice this.

Justice Byron R. White: Not just some activities but decisive act.

Mr. John W. Riley: This presents the -- this presents what we admit is a separate question, namely, is this gamut of activities which took place in Washington including what we consider to be the support activities of the other divisions, were these decisive factors in holding this mark.

Justice Byron R. White: You accept that burden under Norton, do you?

Mr. John W. Riley: Yes, we certainly do, Mr. Justice White.

And we believe that considering the whole picture, considering all of the instate activities of General Motors that are related to these sales, we submit, we have met that burden on notice.

You might say there's a different of -- difference in approach between us and General Motors here.

They would like to take each type of activity such as that of resident personnel and say, "Well, that doesn't do the job."

They would like to take the other divisions and say, "Well, those don't do the job."

They would like the, as Mr. Barnes has expressed it previously, occasional forays of people from the Portland zone and say, “Well, that doesn't do the job either, nothing does the job, no taxing jurisdiction."

Our difference in approach, with this approach, Your Honors, is that we feel that you have to take all of these and look at the whole picture and look at them together and if you want to take your rather perhaps mathematical approach, add them up and see what they all count to.

And we submit, Your Honors, that looking at the whole picture we have established our taxing jurisdiction.

Thank you.

Rebuttal of Donald K. Barnes

Mr. Donald K. Barnes: Just one remark, Mr. Chief Justice, other States do impose taxes on General Motors Corporation with respect to the income and so on, which is derived from the sales of automobiles to customers in Washington.

Now, those taxes are apportioned and they are valid for that reason.

They are paid to the State of Oregon.

They're -- they are not measured by gross receipts insofar as these sales are concerned, they are measured by net income.

Nevertheless, it's net income derived in part from sales to the Washington customers and for the privilege of carrying on these activities in Oregon, in California, in Michigan as measured by capital stock in New York City, has -- has no relation to these transactions, has, however, gross receipts tax which is apportioned and which is not been successfully challenged because it's apportioned.

Justice John M. Harlan: How many states -- could I ask one question?

How many States that is unapportioned to gross receipts tax?

Mr. Donald K. Barnes: So far as I know, Mr. Justice Harlan, only two are -- it's Washington and West Virginia.

And the West Virginia one isn't applied quite this way.

Illinois had a tax which was treated that way, the retailers' occupation tax, one is before is this Court in Norton.

But Illinois, there was still cost, it calls its tax that has corrected it and converted into a sales tax by enacting a complimentary use tax.

So it's now being made a pure consumer type of tax, so it takes it out of this category.

There's also, the City of Los Angeles and I think there are some other cities and of course, New York City.

But New York City's tax is apportioned on these interstate transactions.