NATIONAL BELLAS HESS, INC. v. DEPARTMENT OF REVENUE OF STATE OF
Legal provision: Article 1, Section 8, Paragraph 3: Interstate Commerce Clause
Argument of Cox
Chief Justice Earl Warren: National Bellas Hess, Inc., Appellant, versus Department of Revenue of the State of Illinois.
Mr. Cox: Mr. Chief Justice, and may it please the Court.
This appeal from the Supreme Court of Illinois presents the question whether Illinois constitutionally require an out-of-state mail order seller to collect the used tax which Illinois levies upon its residents subsequent use of goods purchased at retail, where the out-of-state seller has neither a place of business nor property nor salesman nor any other kind of representative within the jurisdiction.
The facts are very simple.
Appellant is a mail order house with its only offices and warehouse in Kansas City, Missouri.
Twice a year it sends out through the mail would-be purchasers in Illinois and elsewhere, catalogues seeking purchasers for its goods.
Now the catalogues are simply deposited in the mail, other fliers which were small sales book are sent out occasionally through the year.
The would-be purchasers write in to the Kansas City office where their orders are accepted or rejected.
The orders which are accepted are delivered usually to the United States mails in Kansas City, but occasionally to a common carrier like the American Railway Express and they are thus delivered to the purchasers in all of the states.
Justice John M. Harlan: Just a matter of interest what kinds of merchandise do they sell?
Mr. Cox: A wide variety of merchandise including books, but a large part of it is dry goods.
Illinois since 1955 has levied a use tax upon costumer's use of goods purchased at retail.
And it requires retailers maintaining a place of business in Illinois to collect the tax.
Originally, Illinois gave a customary meaning to retailers maintaining a place of business in Illinois, but in 1961 it added the artificial definition whose constitutionality is an issue in this case.
The provision appears on page 2 of our brief.
It provides that retailer maintaining a place of business in this state shall include engaging and soliciting orders within this state from users by means of catalogues or other advertisings.
In effect therefore, what Illinois is asserting is the right to impose upon an out-of-state seller the duty to collect the tax even so it is never been within the jurisdiction and does nothing more than send advertising through the mail.
Of course that provision alone couldn't possibly be enforced by usual methods of collection.
So having created one fiction, Illinois had to create another fiction.
It provided that those who were deemed to be doing -- maintaining a place of business in Illinois, when they weren't, should also be deemed to consent to the Secretary of State being their agent for the service process, when in fact of course they had given no such incent.
I don't suggest that the artificiality of those provisions in any way makes them unconstitutional.
Illinois can say its black and it's white if it wishes, but I do submit that the artificiality of the definition shouldn't obscure what Illinois is actually doing.
Relying on the statute in question, Illinois first assessed Texas beginning with the effective date of the amendment against the appellant, and then later brought suit by service upon the Secretary of State.
We entered a special appearance and preserved our rights throughout the litigation.
The trial judge granted the appellant's motions for summary judgment and the Supreme Court of Illinois affirmed.
It stated the case in our judgment entirely fairly and finding that we had no property, no representatives, no place of business, no nothing if I may put it that way in Illinois, it said nevertheless the regular sending of advertising through the mails was enough to permit Illinois to impose these extra territorial obligations.
There are two other facts which I must emphasize.
One of them was stated by a special subcommittee of the House Judiciary Committee that it made an exhaustive, much the most exhaustive study in state taxation of interstate commerce, and which emphasized that it must be brought in mind that efforts to subject mail are to sales, to sales taxation involve not only the major houses, but also a large number of much smaller businesses.
We're not talking here about Sears and Montgomery Ward.
They have retail outlets in almost every jurisdiction and therefore it clearly subject to their power.
We're talking about firms like the appellant which is 133rd besides in mail order sale of Wards, and about an even larger number --
Justice Abe Fortas: It's still pretty big.
Mr. Cox: Alright, well bigness is relative and we are big to many other people who would be affected by this legislation.
I can't help thinking of a typical person affected by this legislation.
My neighbor who used to have a mail order business in Massachusetts, he had five employees during most of the year.
It grows up to 20 in the pre-Christmas season.
Justice Abe Fortas: Mr. Cox --
Mr. Cox: He said his catalogues all over the United States, and under this kind of legislation would have to be a tax collector for 50 states.
Excuse me Mr. Justice.
Justice Abe Fortas: I'm sorry.
As I understand it, this case does possibly in a way involve a distinction between sporadic and limited mailings and a regular course of periodic mailings plus occasional mailings, but here --
Mr. Cox: Here, our regular mailings were twice a year, and then there were smaller sales books.
I think that's customary with nearly all mail ordered businesses.
Of course some of them appear weekly in the New York Times, we all see them.
Justice Abe Fortas: For example that I suppose this case would might be different from situation in which a department store, let's say, in New York City sells by mail to some extent, X-extent whatever it may be, to costumers in New Jersey or Connecticut or the district.
Mr. Cox: Yes, but I would think when -- when one can do the kind of advertising that many department stores do such as Masons of the Harvard Cooperative Society, where they send out sometimes in the newspaper regular advertising once a week or oftener that that was in substance indistinguishable from this case, as we think the regularity of the advertising in Miller and Maryland was indistinguishable from this case.
Now the second fact that I wanted to emphasize in particular is that if Illinois can impose this obligation, so can every other sales or use tax state.
We're not talking here about an obligation running to a single state.
We're talking about whether a mail order business of moderate size or smaller size which regularly sends out its catalogues two or three times a year, merely because it puts its catalogues in the mail for national consumer market, can be required to collect used taxes for 10, 20 perhaps as many as 40 or 42 today, sales to the used tax states.
Justice William J. Brennan: Is -- is there legislation of this kind in other states?
Is it common?
Mr. Cox: There are 17 states which now have legislation of this kind on the books.
It may have gone up slightly, but 17 is the figure that sticks in my mind.
There is almost no state which in fact takes steps to enforce it today.
Most of the state sales tax administrators testified before this special committee I referred to, that they didn't think they had the power to impose this kind of legislation.
But it's on the books.
There is not slightly -- slightest doubt that it would be enforced if this case were to be affirmed.
We submit that the statute is unconstitutional and that the judgment below should be reversed, because it violates both the due process and interstate commerce clauses of the federal constitution.
Our first point is that the decision below is contrary to the governing precedence in this Court.
The issue as the Chief Justice pointed out in the American Oil case a few terms ago, is one of nexus.
Is -- there's some definite connection between the state and the person on whom it seeks to lay the burden?
Now when you read the cases you will find that they draw a very sharp line of distinction.
When the foreign corporation has their place of business, a retail outlet or salesman or solicitors of any kind within the state, then the Court has sustained jurisdiction to require seller collection.
But where there is only regular advertising, and just as regular as in this case, plus delivery across state line the Court has held that there was no jurisdiction to impose seller collection.
There are two cases that I would call attention to particularly, because they seem to me to come very close to the point and one of them plainly draws the very line on which we rely.
I refer first to Nelson against Sears, Roebuck.
There the court sustained Iowa's jurisdiction to require Sears to collect the used tax on mail order sales, but it didn't because Sears had retail outlets doing a local business in Iowa.
The opinion is very clear on this point.
Justice Douglas referred to the fact that Sears had those stores and then said that since Iowa has extended to it, that is Sears, that privilege of having the retail stores, Iowa can exact this burden as a price of enjoying the full benefits flowing from its Iowa business, and of course we don't have any such stores or any other kind of local business.
Then he went on to advert to the situation of the mail order seller that has no retail stores and said very explicitly “Unlike respondent, they are not receiving benefits from Iowa for which it has power to exact price.”
And that line drawn in that case is the very one on which we stand here.
The second case to which I would -- which I would particularly emp --
Chief Justice Earl Warren: General, may I ask you about that case?
Does Sears collect this tax in other states than Iowa where it does not have any stores?
Mr. Cox: I don't -- the -- as far as I know the situation is the one found by the special House Committee that collection of sales and used taxes is virtually unknown, those are the Committee's words.
In states where a seller does only a mail order business of the practice right across the board has been to adhere to the distinction which I submit derives properly from the Sears case.
Now the second case that seems to us to be controlling in principle was Miller and Maryland.
There, Miller was a furniture store located in Wilmington and therefore necessarily fairly near the Maryland line.
It set out advertising, regular advertising, four times a year to address the costumers in Maryland as well as in Delaware of course, and it advertised daily, Mr. Justice Fortas, in Wilmington papers circulating in Maryland.
Costumers came to the store normally to select their merchandise, but the merchandise was delivered by Miller's trucks driven by Miller's employees.
The court held nevertheless that there was no jurisdiction.
Now we say if continuous regular advertising plus delivery with your own trucks is not enough to make jurisdiction, but then surely where you don't make delivery with your own truck take away that point of contact and the advertising alone cannot be a sufficient jurisdiction.
It was just --
Justice Potter Stewart: To refresh my unclear recollection, was the Miller case a used tax case?
Mr. Cox: Yes sir.
Justice Potter Stewart: And it was decided under the Due Process Clause?
Mr. Cox: It was decided in terms of jurisdiction and under the Due -- Due Process Clause.
There are overtones of commerce --
Justice Potter Stewart: Of commerce, yes.
Mr. Cox: -- in these clauses, and I think that both clauses in a way are two ways of getting it the same thing and that's why we rely on both.
But it was essentially in terms of jurisdiction.
Now the Miller case, I'd like to emphasize several things about it, but most particularly that our position here is entirely consistent with the position taken by the four dissenting Justices in Miller, because they rely very heavily on the regular deliveries in Miller's truck.
And of course we do know such thing.
We put nearly all our goods in the post office in Kansas City.
We do make some deliveries to the railway express agency in Kansas City, but we don't have anybody using the Illinois highway or making household deliveries.
In this connection, it'll take just a moment.
It's interesting to know that the bill introduced at the last session by the House Judiciary Committee was only once in.
It cuts back jurisdiction in the cases of people who have solicitors to those who have a business location in the state, but that doesn't matter here.
It preserves the existing rule with respect to mail order sales, but we deem to be the existing rule.
And it adopts in the case of household deliveries the position taken by the dissenters in Miller and Maryland.
I call attention to this simply to show the consistency of our view here.
Justice Tom C. Clark: Did you say (Inaudible) what statute is that bill?
Mr. Cox: The bill has been reintroduced at this session, but it has not yet come before the committee for action.
It's -- it's too early.
It was favorably reported with only one dissenting vote by a 35-man committee, the last session.
Justice Byron R. White: Mr. Cox, would a due process decision such as Miller in this area disentitled Congress to subject to these mail order houses to jurisdiction of the state taxation if Congress wanted to?
I mean, could Congress other -- do otherwise and what is done in preserving this line?
Mr. Cox: Well I -- I would think it could.
I would think this was -- while Congress doesn't have the last word on due process, it certainly is entitled to express its judgment with respect to what is fair.
Furthermore, I suppose that the bill -- such a bill would not simply be a congressional declaration of what is due process, but an exercise of congressional power under the commerce clause.
Justice Byron R. White: Yes, but what if it's -- but do you think the commerce clause judgment like that would overwrite the due process considerations?
Mr. Cox: I think what is -- well, I think the court would take it into account and defer to the judgment of Congress upon the fact that'll consider it.
Justice Byron R. White: My real -- my real question is in connection with this current bill in the committee's considerations --
Mr. Cox: Yes I --
Justice Byron R. White: -- do you feel the -- is there any evidence they felt constrained because of Miller in such cases to come out with the answer it did in Miller and Maryland.
Mr. Cox: No, I think absolutely not Your Honor.
I think it's quite clear that they regarded this as this question as open as they had to do under the -- under the cases did not feel constrained by Miller.
The whole tone was one of what is fair, and indeed the committee came up with a recommendation first that while seller collection might be reasonable if the divergences within state legislation were eliminated that in the view of those divergences and the burden that is put upon out-of-state sellers by subjecting them to this kind of extra territorial legislation.
That unless they all conform to a uniform statute then the burden could not fairly be imposed.
Justice Abe Fortas: Why is the burden any worse than it is on in-state sellers?
Mr. Cox: For three reasons Your Honor.
The -- and the first -- and this which I may say too was clearly found by the special committee.
It pointed out that the out-of-state seller has all the burdens of the local merchants plus others.
I think there are three kinds.
They arise first simply from the duplication.
You have to make reports to 50 states.
You have to keep separate records for 50 states which you don't have to do if you --
Justice Abe Fortas: -- if you had stores there.
Mr. Cox: What's that?
Justice Abe Fortas: You'd have to do that if you had stores there.
Mr. Cox: There you are receiving some -- at the stores, you keep records only for the one state and you are receiving some benefits from the state.
Justice Abe Fortas: What's the next thing?
Mr. Cox: Second -- second reason is the divergences among the laws of the different states which are very wide and very important.
Even in the rate of tax, there are eight different taxes today.
They are different in the roads for counting as applied to any one who has credit sales.
You make reports with different kinds and to different arrangements for auditing.
The most dramatic illustration of course is in terms of exemptions.
How is the seller in one place of business, regarding he can do it, but think of the enormous burden.
It's an impossible burden of keeping track of the different exemptions under the laws of different state.
Now it may be said well the sellers don't have to pay any attention to the exemption, but that still results in discrimination against those who engage in interstate transactions whether the burden falls on the buyer or on the seller.
Then there's a third burden that is not applicable to the local merchant, and that is that the out-of-state seller has a far greater -- the out-of-state seller is simply not able to collect the tax with the same fees that the local merchant can do with someone standing there face to face with him.
This is again well documented.
The special subcommittee found that the rate of non-collection ranged from 30 to 75%.
Our own experience is that we've been unable to collect in an average of 40% of the cases, where our local stores, we do have three states in which we have local stores, make it our obligation to collect the tax.
40% of the cases on a 3.5% sales tax comes to your paying virtually a 1% gross receipts tax.
And this results of course from the fact that the man is far away and he sends in the money for his order and it doesn't include the tax pay.
And while you may bill him, you just don't get the money back and it's a small sum and then the laws falls on the seller, so that I think for those three reasons, but especially because of the multiplicity of burden.
You do have an obligation that results in discrimination against the out-of-state seller.
Justice Hugo L. Black: Did you say you thought these boundaries would have to say?
Mr. Cox: I couldn't say as to that.
I did say that the judiciary committee of the House, which you say a powerful and important committee, favorably reported such a bill with only one dissenting vote.
I assume that the other members were content to be regarded in favor.
Justice Tom C. Clark: What page is that?
Mr. Cox: Last section.
Justice Tom C. Clark: Last section.
Mr. Cox: Last section, yes.
Justice Tom C. Clark: How many bills that you're familiar with and how many sections (Inaudible) cases of this Court in the interstate deal of taxation?
Mr. Cox: In the Tax Bill?
The only one I think of -- well it was referenced to decision.
The one that followed Northwest La -- Northwest Portland Cement, which again drew the line that case and refused to go farther.
Justice Tom C. Clark: That was on the --
Mr. Cox: Income tax.
Justice Tom C. Clark: Yes.
Did that pass on one account?
Mr. Cox: Oh!
Changing the federal tax laws?
I didn't have that in mind when I answered Your Honor's question and I supposed there -- I supposed there are large number of those --
Justice Tom C. Clark: -- dealing with the state, that's what I mean.
Mr. Cox: The one dealing with state taxation of Interstate Commerce.
The only one that I know of that was a response to a decision of this kind was the one dealing with the income tax which said to Northwest Light “This far but no farther”.
I don't think it overturned the decision but it said not any farther.
Now the second -- I've referred already in answer to Justice Fortas's question to what seemed to us to be the multiplicities and discriminatory burdens that you necessarily suffered, if you have a business in one location and are forced to act as tax collector for a large number of locations.
Of course, the other side of the kind is that Illinois is attempting to impose a tax upon us here, even though the appellant receives no benefits or protection from Illinois government.
The line that was drawn in the -- the Sears case between those who have local outlets, and later those who had local solicitors in a state using its highway receiving police protection.
And those whom -- who receive no benefit as Justice Douglas put it for which Iowa can exact the price, because they have nothing in Illinois, is one that's worded in a very fundamental principle that runs through all the tax cases of this Court.
The Court has said over and over again in cases involving attempts to put tax burdens upon those engaging in interstate transaction.
That the burdens must have some reasonable relation to the benefits which the one I'm holding the burdens are put, receives from the taxing state.
Now here we're very clearly receive no benefits whatsoever in any usual sense because we're not there.
The state says in its brief “National's common carriers, delivering agents and bill collectors continually and systematically use among other list obvious things are wrong.”
The court below stated the facts I think a good deal more fairly, or faced them a good deal more candidly.
It said, and the record sustains it, National does not have in Illinois any agent or other type of representative to deliver merchandise, to accept payments or to service merchandise itself.
Justice Byron R. White: So we -- you really think the difference between common carrier delivery and using our own delivery trucks is that, that's a real and substantial one that the case ought to turn on that?
Mr. Cox: No, I don't suggest that because Miller and Maryland held the opposite.
I simply say that we don't have even the delivery trucks.
Justice Byron R. White: Well I know but you have the common carrier.
Mr. Cox: Well, they're not ours, we --
Justice Byron R. White: Well I know that --
Mr. Cox: -- they're the railway express.
Justice Byron R. White: That's what I asked -- that's what I asked, whether you think that makes -- that that is --
Mr. Cox: Oh yes!
I think that is an important fact.
Justice Byron R. White: Critical difference.
Mr. Cox: I think that it -- well as I said a moment ago Your Honor, I think Maryland -- Miller and Maryland would sustain us even if the delivery trucks were there, but I think that as a matter of nexus this is extremely important.
If the kind of indirect benefit that it suggested that we get -- supposed we give -- put merchandise in the United States mails, and then the United States mails and the purchasers operate under the protection of Illinois, were enough of a benefit to justify this then I would suppose that Massachusetts could tax Florida hotels because Massachusetts citizens -- because Florida hotels exploit the Massachusetts citizens.
Justice Byron R. White: Well is this -- are these -- are these mostly COD deliveries?
Mr. Cox: No.
The -- usually the cash is sent in with the mail order.
Justice Byron R. White: Well whose -- whose goods are they when they get them over?
Mr. Cox: I presume the title passes when they are delivered to the Railway Express and to the United States mail.
Justice Byron R. White: Would that make any difference to you?
It wouldn't, wouldn't they?
Mr. Cox: Well, it is the point in our favor.
I shouldn't think that it would make a decisive difference, but if it is important I take that the title passes when we deliver it.
Justice Byron R. White: You take it, but you really don't know do you?
Mr. Cox: I -- we don't know of any instance.
That's the normal rule of sales, but I don't know of any instance where the point has been imparted in our business and it's been litigated, so I say I don't know.
But I --
Justice Hugo L. Black: You say it among approvals?
Mr. Cox: We would accept returns.
I don't think we ever make shipments on approval, no.
But if people sent things back, in all fairness we would take them back and send them something else.
Justice Hugo L. Black: Your orders originate (Inaudible).
Mr. Cox: The orders are sent by -- through the mail by the costumers all over the United States.
Justice Hugo L. Black: It's an old company, though.
It's an old company.
Mr. Cox: It's an old company, yes.
Justice Hugo L. Black: I remember my mother use that.
Mr. Cox: May I reserve the rest of my time Mr. Chief Justice?
Chief Justice Earl Warren: You may.
Attorney General MacCarthy.
Argument of Terence F. Maccarthy
Mr. Terence F. Maccarthy: Mr. Chief Justice, may it please the Court.
There appears little dispute as to the issue of the case whether within the limitations of the due process clause of the Fourteenth Amendment, Illinois may now require National Bellas Hess under the circumstances of this case to collect and remit its used tax.
I respectfully suggest that the -- this particular issue turns upon first the Illinois statute and secondly and most importantly the particular facts of this case.
I would now like to address myself briefly first to the -- excuse me, the statute and secondly to the facts of the case.
Uniquely, National's argument does not address itself to the Illinois statute, the one now before this Court, rather they suggest false statutes of other states or if you will, states in general.
They point out thus the report to which they refer, the House report, they point to the fact that there is no unanimity in state statutes, and with this we agree.
And they further premise upon this fact the conclusion that due to a lack of unanimity there are certain unfairnesses which result in state taxation.
I respectfully suggest to this Court if the unfairnesses to which they allude are not to be found in the Illinois statute.
As the statutes of many cases which from time to time this Court has considered, Illinois provides both a sales and a used tax.
These are intended to, and I suggest do compliment one another.
The sales tax applies to transactions within the state and conversely the used tax applies to interstate transactions such as the instant transaction.
Both are measured at 3.5% in the State of Illinois.
Counsel has adequately mentioned the recent 1961 catalogue provision statute which was enacted by Illinois.
I might answer in the question of Mr. Justice Harlan as to how many states do have that, actually its 21 states now.
At the time this particular report was prepared there was 12 states.
Now there are 21.
Justice John M. Harlan: On the report, what is the (Inaudible) experience in the statute?
Was there an error in your reference in the report?
Mr. Terence F. Maccarthy: I would agree with the Court.
The only reference I would have would be the comments and the report with which I would agree.
The report observes that the large ones that have retail stores within the state i.e. Sears --
Justice John M. Harlan: (Inaudible)
Mr. Terence F. Maccarthy: No, not until recently Your Honor, not until recently, yes.
Justice John M. Harlan: Just in case the Court require --
Mr. Terence F. Maccarthy: Definitely, as a matter of fact, I suggest the case not yet decided by the court.
Justice Hugo L. Black: Is there any question that is signing the cost and the burden that's put on this company?
Is there a state law providing the payments for acting as tax collectors?
Mr. Terence F. Maccarthy: Yes Mr. Justice Black, it does.
Specifically Section 439.9 of the Illinois statute specifically provides an administration expense rebate.
This is 2% of the amount of tax collected.
In other words, the retailer collecting the tax for the State of Illinois may withhold to defray his administration expenses 2% of the tax collected.
Justice Hugo L. Black: There's no question raised that that's been adequate?
Mr. Terence F. Maccarthy: I don't know.
There doesn't appear to be one.
Now the report to which National in its brief allude makes the argument that this is one of the unfairnesses in state taxation, but as I'm now arguing I do not think it's an unfairness consonant wit the Illinois statute.
I think the Illinois statute before Your Honors, this is in the forefront of the state and used taxation.
Justice Hugo L. Black: Would you think it significant or decisive if the state law did not provide to pay the company for acting as its tax collector?
Mr. Terence F. Maccarthy: No Mr. Justice Black I would not think that that would be significant.
There is another point provided by the Illinois statute which I do think might be significant to this Court, but not that one.
Justice Hugo L. Black: In other words, they can make them do it and pay out all the money out of their own pocket?
They can make the state where a company does no business within the state serve as a tax collector without pay?
Mr. Terence F. Maccarthy: Why I -- yes, as an answer to your question, I do not think that they would have to, as Illinois does, pay them to be the tax collector.
Of course, you premise your question in the fact that they are not doing business in the state.
My argument would be that National in the posture of this case is definitely doing business.
Justice Hugo L. Black: But I'm talking about one it is not doing business, simply same advertising.
Would you call that doing business?
Mr. Terence F. Maccarthy: Well it depends upon the particular fact circumstances of the case Your Honor.
Justice John M. Harlan: Does that 2% objection apply to (Inaudible)?
Mr. Terence F. Maccarthy: Yes it applies because I -- all of the provisions of our taxes as a matter fact are -- the tax specifically states that all of the provisions of our sales tax apply equally to the used tax, and those on further provides that where a sales tax cannot be collected under the similar circumstances, a used tax cannot be collected.
Justice Potter Stewart: Of the 2% applied across the board to the use tax and the sales tax and applies equally to local retailer?
Mr. Terence F. Maccarthy: That's correct Mr. Justice Stewart.
Justice Potter Stewart: So that insofar as there is any disparity between the local people and this appellant, though the disparities continue because each -- each is treat -- treated equally with the --
Mr. Terence F. Maccarthy: Each is treated equally, correct Mr. Justice Stewart.
Justice Potter Stewart: So the net disparities if any, continues?
Mr. Terence F. Maccarthy: Right.
The one other additional section of the Illinois statute to which I would like to briefly allude is Section 439.3, I needless to say, when I read it, I'd like to paraphrase the pertinent part of that statute.
The statute specifically expresses an intention to avoid multi-state taxation, and in so doing, subsection (c) of the Illinois statute provides that where -- if there is an interstate transaction, such as we have here, if a tax is paid in the state of origin, the vendor's home state, there is a corresponding offset credit in the State of Illinois.
Thus it follows that if there is a tax paid in Missouri on this transaction, for the extent the tax is paid in Missouri no tax need be paid in the State of Illinois.
Justice Abe Fortas: What kind of tax would that be?
Mr. Terence F. Maccarthy: Probably it would be a sales tax in Missouri.
As I will later point out Mr. Justice Fortas, the report is replete with references to the fact that Missouri or the vendor state do not collect the tax, but assuming that they did collect the tax, there would be an of -- or credit against that tax in Illinois.
Justice Abe Fortas: The reason I asked the question is that I thought that the vendor state did not collect those taxes.
Mr. Terence F. Maccarthy: They do not, right.
Justice Abe Fortas: So that this is pretty theoretical, isn't it?
Mr. Terence F. Maccarthy: It's theoretical under the posture of this case definitely.
I -- I point to this and as a matter of fact to this and also to the provision for an administrative credit merely to demonstrate that I think the Illinois tax in question here is imminently fair and definitely treats intrastate commerce and interstate commerce in both a fair and identical manner.
Mr. Cox says in the main, fairly if not quite fully related the facts of the case to the Court.
I would like if I might to add a few additional facts, more importantly clarify a few misconceptions which have been raised by the reply brief, and in general present to the Court in something of a chronological but brief fashion the facts of the case as they relate to the issue, namely what in-state connection does this appellant, National Bellas Hess have to the State of Illinois.
As indicated by Mr. Cox, National Bellas Hess twice yearly sends into Illinois two major catalogues.
These catalogues contain approximately, each catalogue, approximately 4000 items of merchandise.
They are sent into Illinois with the obvious purpose of soliciting sales in Illinois.
In addition to these catalogues, National sends in to Illinois sales books and flyers.
Now in this point there appears to be some dispute as to the record.
In the reply brief, page 3 of National's reply brief on footnote 2, they seem to take some offense that our statement of the record and claimed that we have misstated the record by intimating that some advertising was done other than by catalogue.
I respectfully suggest to the Court that the record supports the fact and as a matter of fact now in oral argument Mr. Cox did allude to the fact that sales books or flyers were sent.
I suggest that the record is replete the answer on pages 54, 55 and 58 of the brief.
Affidavits by two of its vice presidents, by National's vice presidents, contained at pages 68, 69 and 70, pages 32 and 33, referred to catalogues, sales books and flyers.
And as a matter of fact go on to distinguish as I would now that the sales books and flyers in addition to being sent to costumers are sent to addresses with addressees designated merely as “occupant”.
The record further indicates that these sales books or flyers are usually included with merchandise sent into the state.
I think this bears particular significance here.
National, in the posture of this case had an excess of $2 million in sales in a period of approximately 15 to 15 and one half months.
Now our brief mentions 14 months which is incorrect.
It would properly be a period of about 15 to 15 and one half months.
Their sales exceeded $2 million.
Justice Hugo L. Black: In Illinois?
Mr. Terence F. Maccarthy: In Illinois, yes Mr. Justice Black.
Accepting this then, if the usual practice was to include sales flyers in their merchandise, over 200,000 items came into Illinois which usually contain sales flyers or sales books as they would call them.
Justice Abe Fortas: I'm interested in the -- the brief to which you would apply your statute.
I hope you'll come to that.
For example, let's suppose that Macy's had a hundred costumers in the State of Illinois and that -- that Macy's imposed advertising literature, catalogues, as they usually do I gather in their bills that were sent to these costumers every month.
Mr. Terence F. Maccarthy: Right.
Justice Abe Fortas: Would your statute cover that, and I hope you'll come to that kind of problem (Voice Overlap)
Mr. Terence F. Maccarthy: I'll answer it if I may now Mr. Justice Fortas.
Yes, the terms of the statute would definitely cover that particular transaction.
The statute is quite broad and would -- it mentions advertising per se.
In this regard, I might indicate that the statute here is identical not quite in le – legal in total terms, but definitely in legal terms for the statute before this Court in the Scripto case, Scripto versus Carson.
This particular statute, the Illinois statute is identical, so the Court has had before a statute identical in terms of the Illinois statute in the Scripto case.
For that matter in the Scripto case, this Court footnoted and spelled out the statute, the Florida statute in Scripto in the margin.
Justice John M. Harlan: What grounds as to (Inaudible)
Mr. Terence F. Maccarthy: We -- we had independent con -- we have ten independent contractors in the Scripto case.
Justice John M. Harlan: What about this case?
Mr. Terence F. Maccarthy: Pardon me?
Justice John M. Harlan: Was it not this case?
Mr. Terence F. Maccarthy: No it was not this case.
The distinction in Scripto, Mr. Justice Harlan was that there were ten independent contractors or specialty brokers.
Here, in lieu, there are -- we have the catalogues.
Justice Abe Fortas: This bothers me that suppose Macy's had only one costumer in Illinois and that costumer have been to New York and had opened a charge account at Macy's.
And then thereafter Macy's sent monthly bills and said “We're going to have a light sale and we offer you bed linen at a bargain.”
And then the costumer responds to that advertising and buys a bed linen.
Is that enough to subject Macy's to the duty of collecting a used tax?
Mr. Terence F. Maccarthy: I think the issues then would be one resolved by the Courts Your Honor, and I think the issue as I will, in stating my suggestion as to the law to be distilled in this field, will turn on the continuous and substantial nature of the business.
Justice Abe Fortas: Well that's what I'm trying to get at.
Mr. Terence F. Maccarthy: Right.
Justice Abe Fortas: Their statute says engaging in soliciting orders.
Mr. Terence F. Maccarthy: I --
Justice Abe Fortas: And I'm asking you in effect whether Illinois makes a distinction between an occasional solicitation as in the cases that I put to you, or a regular solicitation but limited in quantity.
Mr. Terence F. Maccarthy: In direct answer to your question --
Justice Abe Fortas: And in this kind of thing where you have a sort of a broad side solicitation through mail order catalogues and flyers and so on.
Mr. Terence F. Maccarthy: In answer to your question Mr. Justice Fortas, the Illinois statute does not make the distinction.
Justice Potter Stewart: How about continuing a thought suggested by my Brother Fortas.
I -- I suppose in your Illinois newspapers in -- on Sunday, the Book of the Month Club advertisers that puts a little coupon in there to send in?
Mr. Terence F. Maccarthy: Yes Mr. Justice Stewart it does, but that is the issue of the amici brief raised, yes.
Justice Potter Stewart: This would -- this would cover -- your statute would cover that one?
Mr. Terence F. Maccarthy: Our statute would cover it.
I am not presenting to this Court and I would make this distinction that the -- those particular facts would satisfy the scrutiny of the Court under a due process argument.
I am however, and I make this point quite strongly suggesting that the Court has before it, the statute is identical to the statute in Scripto.
The Court has before it the particular facts of this case which I would like my particular emphasis to go on.
We do not have a Macy situation as Mr. Justice Fortas would suggest, nor do we have one of these -- what I would term the occasional type of advertising.
Justice Potter Stewart: I know every Sunday -- every Sunday throughout the year in every -- in every Chicago Tribune Sunday paper.
Mr. Terence F. Maccarthy: I would think again that the issue would turn not only on the advertising itself but on the business wrote by the advertising.
As a practical matter --
Justice Potter Stewart: The statute -- the statute is, I think you've already said makes such no distinction?
Mr. Terence F. Maccarthy: No -- nor did the statute in Scripto which this Court put in the footnote.
That definitely the statute makes no distinction.
Justice Potter Stewart: And the statute wouldn't cover it.
Mr. Terence F. Maccarthy: Yes, that the statute wouldn't cover --
Justice Potter Stewart: -- for that -- for that situation.
Mr. Terence F. Maccarthy: Yes.
Question of the Illinois Supreme Court opinion definitely would not tolerate and I doubt that the opinions of this Court would.
Justice William J. Brennan: Well what is that ground engaging?
Now the content given to the word engaging is that's why you say that the distinction between the situations of this as Justice Fortas postulated in these kind of cases?
Justice Potter Stewart: Well Mr. Justice Brennan, I don't think that the -- the distinction is to be found in the words of the statute.
The statute is quite broad.
I think the distinction is to be found in an interpretation of the decisions of this Court in interpreting what is required for the nexus or the minimum content requirement.
I think that is the issue and I suggest that it should be addressed in this case to the particular circumstances to this case and not to circumstances that as they might be in a subsequent case or in another case.
Justice Byron R. White: You would -- you wouldn't really say you would argue for a different result if Bellas Hess here simply switched from sending in catalogues through regular advertising for the newspapers and in on television and radios and sold the same amount of goods as a result of it.
Mr. Terence F. Maccarthy: No I would definitely would not Mr. Justice White.
I think that the results bear most importantly not the method of advertising but rather the results.
Justice John M. Harlan: (Inaudible)
Mr. Terence F. Maccarthy: I definitely --
Justice John M. Harlan: (Inaudible)
Mr. Terence F. Maccarthy: Oh!
Definitely, I think that there should be some kind of a rule that they should understand Mr. Justice Harlan, and the rule that I will suggest should be distilled from the cases of this Court is the rule which businessmen should well understand.
And that is simply that where a business is in successfully in a state from a business point of view that that should be equated with presence in a legal -- from a legal point of view.
Justice John M. Harlan: Do you think that's the rule that the case should be disclosed?
Mr. Terence F. Maccarthy: I think that that is the rule that the case should disclose Mr. Justice Harlan, yes.
Justice John M. Harlan: (Inaudible)
Mr. Terence F. Maccarthy: Correct.
I think that the form, I think that the decisions of this Court most notably the recent Scripto decision definitely indicate that formal distinction should not be given o -- overemphasis but rather matters of substance should be considered.
We should look to the business success of the particular business in the state and not to the formal arrangements which it enjoins in the states.
Justice Abe Fortas: Well what you're saying if I understand it is that while the language of your statute is very broad, you say that that's your position, that you recognize that there are limits as a constitutional matter?
Mr. Terence F. Maccarthy: Yes I do Mr. Justice Fortas.
Justice Abe Fortas: And those limits would depend upon the volume and the frequency, what are the factors?
Mr. Terence F. Maccarthy: What are the factors as the limits upon which they would depend?
Justice Abe Fortas: Yes.
Mr. Terence F. Maccarthy: I would suggest Mr. Justice Fortas that the principle to be distilled from all of these cases, the nexus cases, are first that stress should be played on substance and not form.
That secondly, continual and systematic activity should be distinguished from occasional or casual activities.
Justice William J. Brennan: What substance and not form, what's that?
Mr. Terence F. Maccarthy: What is substance and not form -- I might give an example, yes.
The use of common carriers as opposed to the use of their own trucks within the state, I would think that this is the matter of substance in that form.
The -- thirdly I think that the method of solicitation --
Justice Potter Stewart: Do you think that's a matter of substance and not form?
Which way does that cut in this case?
Mr. Terence F. Maccarthy: I don't think that there should be a legal distinction between the use of a common carrier within the state.
Justice William J. Brennan: You mean they'll have to stay the same as Miller even though it's common carrier rather than private carrier solution?
Mr. Terence F. Maccarthy: That's correct, yes.
Justice Potter Stewart: Well do you think its substance and not form or form and not substance.
I misunderstood your --
Justice Byron R. White: That's just form, isn't it?
Justice Potter Stewart: Yes.
Mr. Terence F. Maccarthy: I would -- I would suggest that substance should take proper than the form.
Justice Abe Fortas: Maybe it's both.
Justice Potter Stewart: So now which is this distinction between common carriers and their own type?
Mr. Terence F. Maccarthy: In other words, I am -- I'm suggesting that the fact or the distinction that you would make would be a formal distinction between a common carrier on the one hand and a --
Justice Potter Stewart: Form but not substance.
Mr. Terence F. Maccarthy: -- your own trucks, right.
Justice William J. Brennan: You're saying you would make or wouldn't make a distinction --
Mr. Terence F. Maccarthy: I would not in law.
I'm making the distinction in answer to the questions, Mr. Justice Brennan.
Justice William J. Brennan: Alright.
Mr. Terence F. Maccarthy: Thirdly, I think that the method of solicitation matters not so long as the -- it does not bear upon the in-state efficiency of the business.
And I think that this is definitely a principle we can take from the Scripto case.
And finally, I think that as I've already alluded, successful presence in an economic sense should be equated with sufficient presence in a legal sense.
And this, Mr. Justice Harlan, I would suggest would be a -- a fine rule and then -- the best workable rule for the businessman.
It's something he fully and well understands.
Justice John M. Harlan: What about the (Inaudible)?
Mr. Terence F. Maccarthy: Well that I think would depend a great deal on the -- this particular Court.
I definitely think that $2 million of business, in excess of $2 million of business, in a period approximating 15 and a half months, any businessman would agree was economic success within the State of Illinois.
I might make another point here.
There were in-state COD deliveries.
Again there seems to be some question raised in the reply brief as to the propriety of our mentioning in COD collections within the state.
The record, I think, bears us out the quote that counsel mentions.
They quote in their reply brief at page 8 and footnote 3.
They set out a quote wherein we suggest COD collections were made.
They -- in setting forth our quote, by the way that is page -- there's typographical or a printing error there.
That is page 15 of our brief not page 17.
In setting out that quote, I think in fairness they might have set forth a footnote which immediately followed that quote.
And then the footnote we correctly, in accordance with the record, indicated that COD collections were not the -- the practice in all cases.Unfortunately, the record does not indicate in what and how many instances COD collections were made.
However, the fact remains that COD collections were made in Illinois.
In the same footnote, they seem to take issue or object to our reference to the -- or common carriers or the postal authorities as their representatives or as their bill collectors.
Now, I think two particular statements by this Court might bear upon this and again this goes to the substance over form argument which I would now make to the Court.
Mr. Justice Douglas in writing in the Harvester case indicated in a similar type of case that -- in these cir -- circumstances, we are dealing with matters of substance and not with matters of dialectics.
And further, Mr. Justice Clark in the writing for the majority of the Court in the most recent Scripto case said “To permit such formal contractualships to make a constitutional difference would open the gates to a stampede of tax avoidance.
Justice John M. Harlan: Is there any, suppose there's no way of -- just to making approach of the (Inaudible)
Mr. Terence F. Maccarthy: What, the volume?
Justice John M. Harlan: What is your in-state (Inaudible)?
Mr. Terence F. Maccarthy: I -- I do not know the exact answer to that Your Honor.
What -- what percentage of total revenue this would mean to the state I do not know.
Justice John M. Harlan: Is there any (Inaudible)?
Mr. Terence F. Maccarthy: The problem is not a question, if I may pause in an answer to you question Mr. Justice.
However, the problem here is not a question of revenue to the State of Illinois.Here is the problem.
I think that the defendant, National Bellas Hess, is somewhat ill characterized its position in this Court.
They're suggesting to the Court that there is small specialty type mail order house, one who wants to eliminate discrimination, one who wants nothing more than equality of tax treatment.
I don't think that the record in this case Your Honors or more importantly this report, the state taxation report which they rely upon, bears this particular status out for them.
If I might point to this, they make a great to do about the fact that in most states, collection has not or is not made from cir -- in circumstances such as this.
In other words, most states do not require an out-of-state vendor to make a collection of its used tax.
They make a great to do about this fact.
Now, this is -- this is true.
There's no question about this.
We're -- we're willing to admit it.
Only recently, Illinois has enacted a statute.
I don't think the fact that Illinois or other states have not collected this tax in the past bears one iota on the constitutional issue before this Court.
However, and this would be the point I would make, I think the reason states have recently enacted this legislation does bear upon the policy considerations and does portray National in a little different light.
And I might explain this.
The record is also replete with references to the fact that most of the vendor states do not require collection of this tax.
Appreciating this fact, it becomes rather obvious that National Bellas Hess or these mail order houses are now in a tax sanctuary situation they're not paying any tax.
And not paying any tax to permit it, to discriminate in a way against the local buyers and also against the mail order houses who do pay the tax.
This I think is a -- an important point in understanding the policy and the reason for this tax.
This tax is not intended to discriminate against out-of-state buyers.
The purpose of this tax is to have everyone treated equally, to permit the in-state seller the same margin of profit that the out-of-state seller would have.
Justice Byron R. White: Well this really is -- you really think this may be a business regulation device rather than a revenue reason making --
Mr. Terence F. Maccarthy: If you're asking me Mr. Justice White, do I think that this particular bill will pass?
Justice Byron R. White: No.
Mr. Terence F. Maccarthy: Oh!
Justice Byron R. White: Your bill -- the Illinois law is really a business regulation --
Mr. Terence F. Maccarthy: Well definitely.
I think it's intended --
Justice Byron R. White: Not -- not revenue raise, not a --
Mr. Terence F. Maccarthy: No, it's definitely not to raise revenue.
The idea is to protect, if you will, not only the local merchants but the intrastate merchants who are collecting and remitting the Illinois tax.
Justice Byron R. White: How far back do you have it like that?
How far back do you permit it to?
When does the statue --
Mr. Terence F. Maccarthy: The statute was passed in July 1, 1961.
The particular tax in question ran from July 17, 1961 to October 31, 1962.
Justice Byron R. White: But if you wanted to against Bellas Hess, how far back did you go?
Mr. Terence F. Maccarthy: July 1, 1961.
Justice Byron R. White: If you can do this, why -- if you can do this to collect the use tax from Bellas Hess whether they collect it from the purchaser or not, why couldn't you just apply a failed tax to these sales, these interstate sales made by Bellas Hess to fire in Illinois?
Mr. Terence F. Maccarthy: I understand your question Mr. Justice White.
I think we're precluded from collecting a tax -- a sales tax by this Court's --
Justice Byron R. White: Why?
Mr. Terence F. Maccarthy: --decision in the McLeod case.
Justice Byron R. White: What's the basis for that?
Mr. Terence F. Maccarthy: The McLeod case indicated that the sale would have to be within the state which would have been definitely not.
We make no argument to the sale as within the state.
Justice Byron R. White: Well why should it have to be within the state?
Mr. Terence F. Maccarthy: Well, this is the Court's decision in --
Justice Byron R. White: Well I know but why?
How do you understand it?
What's the -- why is the rule -- why is there a rule against that from the sales tax?
Mr. Terence F. Maccarthy: Well mis -- the late Mr. Justice Wiley Rutledge wrote a vigorous dissent in McLeod, if I could possibly pair his phrases.
He did not agree that in McLeod a tax should not be collected and it should not border upon the semantics of whether or not it was a sales or used tax.
Justice Byron R. White: So you -- you would say yes you should?
If you can do this you should be able to -- to let the sales tax?
Mr. Terence F. Maccarthy: Well I -- I think that or more properly, the right to collecting a used tax, and this is the reason we collect the used tax.
Justice Byron R. White: Do you think the -- do you think that the cons -- it constitutionally forced to use a used tax rather than a sales tax?
Mr. Terence F. Maccarthy: Yes we do.
I like for a moment to turn in conclusion to the cases real briefly.
National places tremendous reliance upon the Miller case and I think that this reliance is somewhat misplaced, and I think it's somewhat misplaced because National's failed to appreciate the particular facts in Miller.
I'd like to briefly mention some five distinctions in Miller which I think sufficiently distinguish Miller from this case.
First of all, National in its brief and now again in its oral argument refers to the regular deliveries in Miller.
Conversely, the Court in deciding Miller specifically referred to these deliveries as occasional deliveries.
Again, Mr. Justice Clark in writing the Scripto decision referring to Miller, again referred to the “occasional deliveries” in Miller.
Again, in its reply brief at page 3, National refers to the regular mailings in Miller.
Conversely, this Court in deciding Miller referred to the occasional sales circulars in Miller.
National fails to make a distinction which is I think quite failing in Miller, and that is that in the Miller case the buyers left the State of Maryland, went in to the State of Delaware and at the vendor's stores made the purchase.
They do not particularly give any credence to this fact.
However, the majority of the court in writing Miller specifically noted that the seller in the Miller case did not know where the goods were to be used.
Now Mr. Justice Douglas in writing a dissent felt otherwise and believed that the seller should've known where they were used.
The fact remains that whether or not he did or did not know was pertinent.
Thank you Mr. Chief Justice.
Chief Justice Earl Warren: General Cox.
Rebuttal of Cox
Mr. Cox: Mr. Chief Justice, may it please the Court.
I want first to emphasize one factor which slipped through my mind during my argument.
And that is that the logic of the appellee's contention here would plainly open one who does business in a single locality.
Not only do these multiplicities obligations to a large number of states, but also to the used taxes levied by hundreds of local governments.
Just erring this isn't -- this isn't theory, while we were preparing our brief in this case, we received the demand from Washington, Parish Louisiana.
Earlier, when this Court first decided the sales used tax cases, this wasn't a local subdivisions way of raising revenue, but today this would mean that one who sent out catalogues through the mails, and that's all we do and later delivered the goods, would have to figure out in what subdivision these various buyers live so as to collect its used tax.
And I submit there is no way on appellant's theory -- at appellee's theory that these cases can be distinguished.
Our second distinction which my Brother clearly does in prayers but -- which finally would be invalid is one that rested upon whether it was catalogues as the Book of the Month Club advertising or Macy's advertising in newspaper.
The Book of the Month Club advertising is more regular, more systematic, more frequent than ours.
The final point to which I want to take time to address the Court's attention here is one that we touched upon earlier.
And that is, I do submit that to hold that whoever uses -- I'm afraid my time --
Chief Justice Earl Warren: No, finish your --
Mr. Cox: I'll just finish the sentence, Your Honor.
To hold that whoever uses the mails to circulate advertising and deliver goods and thus gains economic advantages within a state, or use of common carrier for that matter within a state, is subject to regulation or taxation or tax burden as hereby it, would open the door to all kinds of -- of reprisals and economic aggressions that the constitution was enacted to prohibit.
And I advert to the example I used a moment ago of Massachusetts taxing Florida hotels because Northeast Airlines is the Florida hotels representative to carry Massachusetts residents down to Florida where the Florida hotels get economic advantages from Massachusetts.
This is an endless morass I suppose.
Justice Byron R. White: You don't think Illinois for example should be able to specify the prices in which a mail order house who sell particular merchandise from Illinois by mail?
Mr. Cox: Where Illinois is attempting to protect its citizens by something pertaining to the business practices that set into Illinois, then there would be --
Justice Byron R. White: What -- what about this price?
Mr. Cox: -- a quite different case.
Let me call it Your Honor's --
Justice Byron R. White: This price -- this price, that's all.
Not about quality or safety or health, just price.
Mr. Cox: Well I would immediately -- I would immediately have to consider the Vermont Milk case where the Court held that the attempt to regulate price of Baldwin and Seelig was improper, if I remember the case correctly.
But I think that the extent of that burden is quite different from this problem of reaching out and imposing burdens on people who have never or in any substantive substantial and would have been within the state.
The mails aren't our representative.
We've never been in Illinois and I think that fact must be faced fairly to appreciate this issue.
Thank you Your Honor.