EVCO v. JONES

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Argument of Kendall O. Schlenker

Chief Justice Warren E. Burger: We’ll hear arguments next in 71-857, Evco against Jones.

Mr. Schlenker you may proceed whenever you’re ready.

Mr. Kendall O. Schlenker: Mr. Chief Justice and may it please the Court, the case of Evco v. Jones is before the Court the second time.

The issue is whether the gross receipts of Evco from sales of tangible personal property to customers outside the State of New Mexico where delivery is made outside the State of New Mexico are exempt from the New Mexico Emergency School Tax and the Gross Receipts Tax.

New Mexico of course is a State which is not a heavily industrial state and as a result perhaps of the Atomic Energy Commission and some of the other government agencies and instrumentalities, in our state there have evolved a number of businesses which deal in scientific and technological materials of which Evco is one.

Now, Evco designs educational programs.

Its customers are many government agencies for the state and federal government.

It does a certain contract work for the Bureau of Indian Affairs and typical of the kind of work it does, which is involved in this case is the designing of instructional programs for the IBM Corporation up in Endicott, New York for its use in training people how to use its typewriters, magnetic tapes, electric typewriters, and other modern types of business equipment.

The products which evolved from this work, which Evco does consists of camera-ready copies of books and training manuals, film strips for instruction and audio tapes.

Now, this case arises under two different New Mexico statutes and for our purposes, I believe it can be considered the same.

The first one was the so-called Emergency School Tax Act which came about in 1939 and continued along until about 1961 when we changed the name to the New Mexico Gross Receipts Tax.

The practical effect of those taxes is the same and in each case an exemption was contained from the tax for sales of tangible personal property to government agencies and instrumentalities and to certain nonprofit corporations.

In this case, in the lower court’s opinion, typical of this were the sales to the U.S. for service into the University of Toledo and so forth.

Now, the first issue involved in this case initially was whether Evco was actually selling tangible personal property or whether it was in fact selling a service, which was not subject to this exemption.

The New Mexico Emergency School Tax contained no provision regarding interstate commerce.

The New Mexico Gross Receipts Tax provides an exemption in the case of sales which were an interstate commerce.

Notwithstanding this absence of a provision in New Mexico Emergency School Tax, I don’t believe anyone has ever contended that New Mexico -- that the presence of this provision one way or another would have any effect since, I think it’s always been fairly clear that if these sales are in interstate commerce that they would be just exempt as they are stated to be under the gross receipts tax.

The New Mexico Court of Appeals decided that Evco was selling tangible personal property which took care of a considerable part to this case, that relating to sales to the Government and sales to these tax-exempt institutions.

However, the Court of Appeals decided that notwithstanding their determination that tangible personal property was involved, these sales where delivery was made to IBM for example in New York were not exempt as being in interstate commerce.

We came to this Court before and petition for writ of certiorari and the New Mexico Attorney General’s Office at that time filed a brief, which -- in which it was stated that so far as a second point was concerned that the state would now agree that the sales were exempt as being in interstate commerce.

They expressed their dissatisfaction with the determination still about the services versus tangible personal property point.

This Court sent the case back in using language in the view of the attorney -- their New Mexico Attorney General’s position or concession that the case was being resubmitted for reconsideration.

And in effect what the New Mexico Court of Appeals said was that we have reconsidered but we don’t we change our mind on this point and we again came back with the petition this time which was granted.

The State raises this point about the tangible personal property versus services, but the state’s position on the second point is that if this is the sale of tangible personal property that we are correct in our position that these sales are exempt as being in interstate commerce.

We rely on the case of Adams Manufacturing Company versus Storen in which the sales there involved were so-called out-shipments and which this Court determined that those sales were exempt as being an interstate commerce.

Justice William J. Brennan: As I understand what you have told us and as I understood it in reading the briefs and understood it, that when the case was last here you and the State of New Mexico are in agreement, are you not that if the sales are on personal property the tax cannot be imposed?

Mr. Kendall O. Schlenker: Yes, Your Honor, we are.

Justice William J. Brennan: And the -- what the State says that if these are services then the tax can be imposed and what do you say about that if these are services?

Mr. Kendall O. Schlenker: I would say that if these had been determined to be services that the tax could be imposed.

Justice William J. Brennan: So, there’s no disagreement between you, is there?

And therefore, the issue for us and the only issue is whether or not these are services or tangible personal property?

Is that the only issue?

Mr. Kendall O. Schlenker: Your Honor, we don’t believe that that will be an issue that the Court will want to even to determine.

Justice William J. Brennan: Well, I would determine.

Well, then what is – you’re in total agreement, aren’t you?

Mr. Kendall O. Schlenker: Yes, Your Honor.

Except that we -- we're obligated on several thousand dollars worth of taxes that we seem to be in complete agreement with everybody about what we nevertheless know.

Justice William J. Brennan: So then isn’t the issue whether or not these are services or tangible personal property?

Mr. Kendall O. Schlenker: Well, Your Honor no.

The New Mexico Court of Appeals has already determined that these are tangible personal property.

Justice William J. Brennan: I have read its opinion to say we don’t need to decide on the remand from this Court when it went back the second time.

We don’t need to decide it because whether it’s a services or tangible personal property.

The tax is a valid tax, isn’t that what they say.

Mr. Kendall O. Schlenker: I think that’s what they say.

I think that’s the question that they had is that in effect that --

Justice William J. Brennan: And you agree – you both agree that the court was wrong?

Mr. Kendall O. Schlenker: Yes.

Unknown Speaker: And you both agree that if its tangible personal property, the tax cannot be imposed and if its services, the tax can be imposed?

Mr. Kendall O. Schlenker: Yes, sir we sure are going to do.

Justice William J. Brennan: Well then isn’t the only issue that divides you -- the factual issue of whether or not this is tangible personal property or services?

Mr. Kendall O. Schlenker: No, Your Honor, because the Court of Appeals in State of New Mexico says that’s its tangible personal property, but they say that it is subject to the tax notwithstanding the fact that is tangible personal property.

Justice William J. Brennan: Well, don’t you know -- this is an -- we have adversary system here now.

I am talking about you and your opponent in this lawsuit.

Mr. Kendall O. Schlenker: Yes, Your Honor.

Justice William J. Brennan: Aren’t you in complete agreement as to the controlling legal principles involved and isn’t your only difference of opinion or the difference between you relates to whether or not these are services or tangible personal property?

Mr. Kendall O. Schlenker: Well, I believe we’re in agreement about the principle is what you applied, but the state does have an assessment involving several thousand dollars and it’s relying on our court’s opinion to enforce that assessment.

Justice William J. Brennan: Though here it comes and says that if this is personal property, this tax cannot be imposed, doesn’t it?

Isn’t it -- don’t you read it’s brief that way?

Mr. Kendall O. Schlenker: The?

Justice William J. Brennan: The State?

Mr. Kendall O. Schlenker: No, no Your Honor.

Justice William J. Brennan: Well, then I misunderstand what you have told me.

Mr. Kendall O. Schlenker: So that’s our problem.

I believe the State has all the way with respect to all of these that they are tangible personal property.

Justice William J. Brennan: Yes.

Mr. Kendall O. Schlenker: But they are saying that we have a right to tax this notwithstanding it that the petitioner should apportion the tax in this case.

Now, under the apportionment idea, we believe that the apportionment we are to make is between intrastate and interstate sales and we believe those are fairly clear.

It appears however that the New Mexico Court is concerned about apportionment of something else.

They’re reviewing this as if it were a value added tax.

I believe I --

Justice William H. Rehnquist: Well, you have a judgment of the highest Court of New Mexico against you, on your liability for the tax.

Mr. Kendall O. Schlenker: Right.

Justice William H. Rehnquist: And I take it the only reason that we would be reviewing it is to hear your contention that’s -- it’s unconstitutional for the highest Court of New Mexico do abdomen what it did.

Mr. Kendall O. Schlenker: Yes.

Justice William H. Rehnquist: So, you got to show us in some way, I take it that what the New Mexico Court of Appeals has done is inconsistent with the Federal Constitution regardless of what label it would have.

Mr. Kendall O. Schlenker: Yes.

Yes, Your Honor and we say that the decision of the New Mexico Court of Appeal is incorrect under the authority of Adams Manufacturing Company versus Storen, and the subsequent cases that reaffirm that same position.

They are relying on the case of General Motors Company versus Washington as authority for their decision in the case and that case involved in-state or in-shipments to the State of Washington.

This Court has drawn these distinctions of three kinds as I understand it, out-shipments which cannot be taxed by the shipping state, in-shipments which can, and then the manufacturing type of manufacturing tax, which is also a constitutional tax.

Justice William J. Brennan: Does the pertinent fact though these receipts were taxed by any other state?

Mr. Kendall O. Schlenker: No, Your Honor, it does not.

Unknown Speaker: One other question, can we go behind the New Mexico courts characterization of its state tax?

It seems to disagree with this Revenue Commissioner?

Mr. Kendall O. Schlenker: Yes, Your Honor.

Our gross receipt tax is very much like the Indian Gross Income Tax of 1933, which was the -- which was involved in Adams and Freeman versus Hewit, and International Harvester.

All of those cases, it is a gross receipts tax.

The Commissioner of Revenue under the Gross Receipt Tax Act which came in 1961 did issue a ruling of which is to the effect that our sale -- our sales would be exempt if in fact they are tangible personal property.

That is the determination that has been made that they are --

Unknown Speaker: I share Justice Stewart’s confusion, I get the impression here that your side and opposing side to have a common enemy in the finding of the Court of Appeals.

Mr. Kendall O. Schlenker: Well, Your Honor initially the Attorney General’s Office took the position that the Court of Appeals follow.

The Attorney General’s Office changed its position after the decision.

The real vice in that, I believe, is that we also have a use tax and I believe that the use tax would be placed in jeopardy if we had a court decision that we could impose that gross receipt tax on the out-shipments, the use tax on the in-shipments.

Unknown Speaker: Well, I'm groping for the controversy between you and your friend here.

Mr. Kendall O. Schlenker: Your Honor, when we went back to the Court of Appeals, we didn’t really know what we were going for except that we had a substantial tax liability, which have been sustained by their decision.

That Court -- this Court had sent the case back for reconsideration and in effect our Court has said that even though these are out-shipments or personal property, nevertheless we can impose the tax.

Unknown Speaker: It said two quite different things in its two opinions and they happen to be by the same judge, Judge Holman?

Mr. Kendall O. Schlenker: Yes, sir.

Unknown Speaker: On page A9, this is its first opinion.

He said, “The sole question is therefore whether or not the contracts constituted sales of tangible personal property within the contemplation of the statutes or were contracts for the performance of services.”

And so he said that’s the sole question for him to decide and then the case came up here and it was remanded.

And on remand on page A31, same judge for the same court says, “We failed to understand how a tax on this aspect of interstate commerce can be constitutionally fair and valid if the -- it arise out of a contract for services, but constitutionally unfair and invalid when the same instances are incidents arise out of a contract of sale.

In our opinion, taxable incidents are equally apparent and ascertain it involve with equal lead whether they arise out of the contract of sale or out of a contract for services.

So, the first time around he said that the sole question was whether they were tangible personal property or services; and the second time around he said it didn’t make any difference.

Mr. Kendall O. Schlenker: Well, Your Honor --

Unknown Speaker: Isn’t that part of the problem in this case?

Mr. Kendall O. Schlenker: Yes, except in the case --

Unknown Speaker: It’s part of my problem in reading this.

Mr. Kendall O. Schlenker: In the case where he said that’s the sole question he went on subsequently in the same opinion to consider the second question.

Unknown Speaker: Which was the second question?

Mr. Kendall O. Schlenker: This -- the matter of the taxability once it’s determined that the products are tangible personal property.

Unknown Speaker: Where is that in the -- this opinion?

Mr. Kendall O. Schlenker: It’s in the next part.

Unknown Speaker: I understood as I suggested in my questions that the only difference between you and your adversary here in this Court.

Mr. Kendall O. Schlenker: It’s on A11 Your Honor, where it begins under its second point.

Unknown Speaker: Well, that’s the opinion that accompanied the judgment that was vacated and set aside, isn’t it?

Mr. Kendall O. Schlenker: No, that’s in the first opinion at page A11.

Unknown Speaker: No, I didn’t think so.

I thought the -- I say that’s the -- that’s the one before us now?

Mr. Kendall O. Schlenker: Yes, Your Honor.

We have the two questions squarely presented.

One on the tangible personal property versus service; and then the second one that was a threshold question once the determination was made.

And I believe that the New Mexico Court of Appeals is just saying that it does not agree with the laws established by this Court.

Unknown Speaker: May I follow up on this question that you’ve been discussing.

Look at appendix A8 which is the first opinion on the New Mexico Court.

The first full paragraph starts it by saying “he taxpayer contends that these contracts constituted sales of tangible personal property” and then on the last sentence the court says, “we agree with the position of the taxpayer.”

Mr. Kendall O. Schlenker: Yes, Your Honor.

Unknown Speaker: Now, I can construe that as a finding and a holding by the New Mexico Court that it construes these sales to be of tangible personal property under your statute.

Now, in its second opinion, after the remand although it did say as you and Justice Stewart have pointed out that it doesn’t see any legal consequence following what would be different if it construed the sales to be of services nevertheless, it concludes by saying we reinstate and reaffirm the first opinion.

Now, I have construed that until this argument that that was reaffirmation of a prior holding that the sales were of tangible personal property.

Mr. Kendall O. Schlenker: Yes, Your Honor.

Unknown Speaker: Is that your position?

Mr. Kendall O. Schlenker: Yes, Your Honor.

They did reaffirm that, but then they went on to say about the second point that the parties were in agreement on if this was tangible personal property.

Then, we can’t see the distinction that the U.S. Supreme Court is drawn that this would be taxable if it was services and not taxable if it was tangible personal property.

Unknown Speaker: But if we accept the position of your Court that this is tangible personal property then you are both in agreement that that’s the end of this case as I understand it?

Mr. Kendall O. Schlenker: Yes, Your Honor except that we’ve asked this time that the remand be with instructions as to the kind of relief which should be granted.

We got back for reconsideration before and the reconsideration [Voice Overlap]

Unknown Speaker: Well, aren’t you really asking us to say that now well the -- your court is wrong.

Now, that there is a distinction between services and sales and where it sales as they say it is then these taxes are unconstitutional reversed.

That’s what you want us to do?

Mr. Kendall O. Schlenker: Yes, Your Honor, exactly.

Unknown Speaker: I think they’re both asking that it be reversed.

Mr. Kendall O. Schlenker: We are except that the -- the state would like to raise its --- this tangible personal property versus services issue.

Unknown Speaker: Well, how can it be if -- well, maybe it can perhaps hear him, but if we are concluded by the holding of your court that it’s on tangible personal property and then that’s -- isn’t that they framework within which the constitutional question should we decide it?

Mr. Kendall O. Schlenker: We maintain that that is exactly correct, Your Honor.

Unknown Speaker: Mr. Schlenker, incidentally where do we find the facts in this case?

I don’t see they have an appendix.

Mr. Kendall O. Schlenker: The facts upon which we rely were stipulated in the stipulation which is material is in the opinion of the court.

Unknown Speaker: Aren’t there two stipulations in the file?

Mr. Kendall O. Schlenker: Not that I recall, Your Honor.

Unknown Speaker: All right.

Justice William H. Rehnquist: Has there been a supervening change in New Mexico law that will make the -- I got that information from one of the briefs that perhaps this would not be a recurring question in New Mexico?

Mr. Kendall O. Schlenker: It would not be in the sense that if the Bureau of Revenue follows its existing regulation that it would just not raise it in any subsequent case.

It does have a ruling in effect which is in the Court’s opinion at the beginning on the bottom of A13.

We believe that that exactly fits our situation -- the receipts of New Mexico seller from sales of property to non-residents of New Mexico or deliveries made out of state by seller’s vehicle, U.S. mail, or common carrier are receipts from transactions in interstate commerce and such receipts may be deducted from the gross receipts of the seller.

That was in existence and our court expressed doubts about it.

They said, well, if that is a correct statement of the law, then it wasn’t in effect that the time that the taxable transactions arose here.

Chief Justice Warren E. Burger: Well, is there something about the handling of the case that could be explained to us to shed some light on it, but maybe you feel a little reticent about explaining?

Mr. Kendall O. Schlenker: Your Honor, I wish I could explain more about the case, I think I can understand why it’s confusing.

It’s confusing to all the lawyers involved in the case in our clients, we know that, it’s a -- I don’t how could -- there are no hidden --

Unknown Speaker: Is this argued before the New Mexico Supreme Court?

Mr. Kendall O. Schlenker: Twice Your Honor, that the second --

Unknown Speaker: Anything in the colloquy between you and the members of that court which shed light on this?

Mr. Kendall O. Schlenker: I had -- one of the judges of the three stated that he wanted me to know that the decision had not been unanimous as it appeared the first time.[Laughter]

Unknown Speaker: And the second time?

Mr. Kendall O. Schlenker: I don’t know, I haven’t --

Unknown Speaker: And then back --[Laughter]

Justice Thurgood Marshall: Mr. Schlenker, what about one more trip of the -- he left the whole tax?

Mr. Kendall O. Schlenker: Well, we didn’t get to come up last time, Your Honor.

The case was sent back perhaps --

Justice Thurgood Marshall: But it was in -- still of course [voice overlap]

Unknown Speaker: It sent back on what was basically a confession of error maybe by the State?

Mr. Kendall O. Schlenker: Yes, Your Honor.

Unknown Speaker: And now by reinstating the words of Mr. Justice Powell read to you and reinstating the previous opinion, the State has confirmed then repeated the error and your adversary as I read his brief agrees with that, isn’t it true and yet as you say continues to but you still have a tax bill to pay?

Mr. Kendall O. Schlenker: Yes, Your Honor that’s what we believe our situation is today.

Chief Justice Warren E. Burger: Well, it comes down to it that the state and the State Supreme Court seem to have some disagreement.

Mr. Kendall O. Schlenker: Well, actually the Court of Appeals -- Judge Holman is now on the State Supreme Court.

Chief Justice Warren E. Burger: No, I meant the Court of Appeals?

Mr. Kendall O. Schlenker: Yes, Your Honor.

Chief Justice Warren E. Burger: I meant the Court of Appeals.

Unknown Speaker: (Inaudible) Court of Appeals is your common adversary?

Mr. Kendall O. Schlenker: I hope so Your Honor.

Chief Justice Warren E. Burger: Well, perhaps the Attorney General will shed more light on it than we have had.

Mr. Cook.

Argument of John C. Cook

Mr. John C. Cook: Mr. Chief Justice and may it please the Court.

This case involves two issues, which were presented to the New Mexico Court of Appeals.

The first issue decided by the lower court was a certain instructional material, which were developed and created by petitioner and sold as camera-ready copies were as a matter of law tangible personal property.

Receipts from sales of this tangible personal property to the United States and the Research Foundation of the University of Toledo were decided to be exempt from the tax as it issue here.

Unknown Speaker: As a matter of your statute, isn’t that right?

Mr. John C. Cook: As a matter of law by the court.

Unknown Speaker: By your statutory law, your tax law, isn’t that right?

Mr. John C. Cook: Well, Your Honor we say that the grounds are ambiguous with regard to why the Court of Appeals raised the decision on the services tangible issue.

Unknown Speaker: Well, doesn’t your tax law exempt sales to governmental bodies?

Mr. John C. Cook: Sales of tangible personal property to governmental bodies?

Yes, Justice.

Unknown Speaker: And as I read this first opinion that you were just applying your statute in exempting those.

Mr. John C. Cook: Once they decided what was being sold was tangible personal property, yes Justice.

The second issue concerns sales to bars who were outside New Mexico and the delivery was outside New Mexico.

The subject matter of those sales was not materially different.

The New Mexico Court of Appeals held that the petitioner’s receipts from these sales were subject to tax.

These sales were clearly under the New Mexico Court of Appeals reasoning out-shipments of tangible personal property.

Unknown Speaker: Where did you say were not out-shipments?

Mr. John C. Cook: Were under out-shipments of tangible personal property.

Unknown Speaker: Yes.

Mr. John C. Cook: How did the Court held that the petitioner’s receipts from these transactions were subject to tax and decided that these receipts could be subject to tax without doing violence to the interstate commerce laws of the federal constitution.

Respondent contends that the New Mexico Court of Appeals incorrectly decided both issues how did the error with regard to the first issue caused and resolved it in the error in the second issue.

Unknown Speaker: May I be sure that I understand.

You now are contending that the court was wrong in holding that these were sales of tangible personal property?

Mr. John C. Cook: Yes, Your Honor.

Yes, Justice.

Unknown Speaker: And you’re further saying that if these were sales of tangible personal property, the court was wrong in holding that the tax could validly be imposed?

Mr. John C. Cook: Yes, Justice.

Unknown Speaker: Now, Mr. Cook how do we second guess that the Court of Appeals is to whether these were sales of tangible personal property as applied in any event?

Your Court of Appeal said, these were for the purposes of your statute, and that’s it?

That’s modern statutory construction in the sense of application that these particular materials, wasn’t it?

Mr. John C. Cook: Yes, Justice.

Unknown Speaker: Now, how do we -- how do we then, we agree with that or have we any jurisdiction of the Supreme Court?

Mr. John C. Cook: Well, if I'm might expand a little on my answer.

The Court of Appeals stated in the first opinion that -- the regarding the issue of services versus tangibles said the adoption of the possession taken by the commissioner would result in an augment imposition of taxes such as those here involved upon agencies and institutions which the legislature intended should be exempt their file or result in a tax burden being shifted to other taxable customers of the taxpayer.

Neither of these results would be consistent with the legislative intent.

Shifting the tax burden would be inconsistent with the object of requiring a tax burden to follow with uniformity and equality upon the class of person sought to be taxed.

In support of the statement, the Court of Appeals cited another Court of Appeals case, New Mexico Electric Service Company versus Jones.

The reasoning that resulted in the statement I’ve read seems to be that if the Commissioner’s decision and order with respect to the issue of service versus tangible personal property have been affirmed by their Court of Appeals, the effect would be a denial of equal protection to taxpayers performance services for the United States or any agency or instrumentality thereof.

The New Mexico Electric Service Company case which was cited by the Court of Appeals raised issues under both the equal protection provisions of the United States and the New Mexico constitution.

Respondent contends that this reasoning of the New Mexico Court of Appeals regarding a requirements of equal protection is erroneous because the imposition of the tax was on the seller and there was no showing that sellers or services to these agencies or organizations has a class that sellers ask class were treated differently for purposes of taxation.

If the imposition of the taxes at issue here is on receipts from the performance of services rather than receipts from the sale of tangible personal property, the respondent contends that the tax is not repugnant to the United States Constitution.

And that seems to be the basis for part of the New Mexico Court of Appeal’s decision with regard to that first issue.

There appears to respondent to be at least of security as to the precise grounds for the judgment in the New Mexico Court of Appeals on the first issue.

Although, we haven’t cited at this case in our briefs in view of the --

Unknown Speaker: Well, one of the things that may be quite right, Mr. Cook would I don’t see however erroneous maybe the basis, the supporting reasoning for holding that these or that this particular taxpayer was taxed on tangibles.

However erroneous that basis is, how can we set aside that conclusion of the Court of Appeals?

Although it’s whether that -- whether the other if it is error has its roots and misapplication of the federal constitution or not as to this tax payer which --

Justice Thurgood Marshall: Well, Justice --

Mr. John C. Cook: We take it that the Court of Appeals was deciding a federal question when they or possibly deciding a federal question.

When they held that the sales were of tangibles.

Now if that was a federal question which was decided erroneously, then under the rules regarding certiorari we say that that federal question can be presented to this Court.

Unknown Speaker: You, you -- do you want us to affirm the judgment of the Court of Appeals?

Mr. John C. Cook: No, Your Honor.

No, Justice.

We want the decision reversed --

Unknown Speaker: And you’re the appellee?

Generally, it’s the appellant who wants the decision reversed.

Mr. John C. Cook: Well, appellant wants the decision reversed, but he wants it reversed on the second issue.

Chief Justice Warren E. Burger: For a different reason?

Mr. John C. Cook: For a different reason.

Justice Thurgood Marshall: Well, is the simple solution agreeable to all to withdraw their assessment?

Mr. John C. Cook: The Court of Appeals gave us direction regarding the assessment -- gave the Bureau of Revenue direction.

Chief Justice Warren E. Burger: Can they do that under your law?

Legally.

Mr. John C. Cook: We are to abide by decisions of the Court of Appeals once cases are presented to them regarding tax liability.

Justice Thurgood Marshall: But you can on your own, the Attorney General’s office can withdraw an assessment once it’s made?

Mr. John C. Cook: We can abate it.

We can’t abate the assessment.

The procedure is abatement, Justice and we can abate it if it’s erroneous as a matter of law or erroneous as to the figures.

Justice Thurgood Marshall: Well, aren’t you now saying it’s erroneous to the matter of law?

Mr. John C. Cook: We are saying now, however the Court of Appeals who decided this case says it’s not erroneous.

Justice Thurgood Marshall: So, you want us to say?

Justice William H. Rehnquist: Another judgment on behalf of your bureau and the other side complains that it violates the federal constitution.

Why don’t you come in and try to uphold it?

Chief Justice Warren E. Burger: Or else go back home and compromise?

Justice William H. Rehnquist: And compromise.

Unknown Speaker: Tell me Mr. Cook, if had your Court of Appeals correctly said this was services and not tangibles which is the position you’re urging now.

Mr. John C. Cook: Yes.

Unknown Speaker: Then I take it this assessment, your view would be the taxpayer have to pay, is that right?

Mr. John C. Cook: Yes.

Unknown Speaker: Well then aren’t you or should you really be here asking us to affirm the assessment of the Court of Appeals on the ground that they were wrong in saying that this was on tangibles that clearly it was on services.

And therefore, you were entitled to make the assessment and to correct it?

Mr. John C. Cook: Yes, Justice.

Unknown Speaker: Well, I really should be asking us to affirm the judgment of the assessment, didn’t you?

Mr. John C. Cook: Well, to reverse on the ground --

Unknown Speaker: Well, you want us to say that we affirm the assessment because the reasons I gave are wrong and the right reasons would be that this was on services and not on, isn’t that it?

Mr. John C. Cook: Yes, Justice.

Unknown Speaker: Well, that’s not really reversal I suppose.

Justice William H. Rehnquist: And the real reason is basically a factual when not a question of state law, I take it, you’re saying that is a matter of fact these transaction were about to a particular nature.

However, the Court of Appeals of New Mexico may have characterized only the statute.

Mr. John C. Cook: That’s correct Justice.

In the case of State of Minnesota versus National Tea Company which is not cited in the respondent’s brief that it’s a 309 U.S. 551.

There was obscurity in the decision of the Supreme Court of Minnesota in a tax case involving the graduated gross sales tax on chain stores.

This obscurity arose because of discussion by the Supreme Court of Minnesota of the Equal Protection Provisions of the Fourteenth Amendment and the reference and the syllabus of that case to a provision of the Minnesota Constitution which provided that taxes shall be uniform upon the same class of subjects.

In Minnesota versus National Tea Company, it was contended that the United States Supreme Court should not take jurisdiction because of the rule that jurisdiction is not taken for a judgment of a state court rest on two grounds, one involving a federal question and the other not.

However, there was found to be obscurity as to the grounds for the decision and jurisdiction was taken.

The case was remanded to the state court to resolve ambiguities of the decision.

And the case in the course of the opinion, this Court stated this Court is frequently held that in the exercise of its appellate jurisdiction it has the power not only to correct errors of law in the judgment and the review, but also to make such disposition of the case as justice requires.

Justice Thurgood Marshall: Mr. Cook, would you be satisfied if we took to fall in the action having remanded this case to the Court of Appeals having accomplished nothing by that at the urging of both parties we now reverse the decision of the Court of Appeals period?

Would that satisfy?

Mr. John C. Cook: No.

We would rather have the decision reversed and have it stand as is it does not.

What we would prefer is that the decisions we changed as to the grounds with regard in --

Unknown Speaker: And the tax sustained.

Mr. John C. Cook: Yes.

Unknown Speaker: That’s what the state would.

Justice Potter Stewart: You want to impose the tax because you submit that you can constitutionally and lawfully do so if it is a tax on personal services.

Is that right?

Mr. John C. Cook: Yes, Justice Stewart.

Unknown Speaker: But why would you prefer to have it reversed among the lines Justice Marshall has suggested than to have it stand as it is now?

Mr. John C. Cook: Well, we would prefer to have the reasoning changed and have it affirmed, but if we can’t get that, we’d prefer to have it reversed.

Unknown Speaker: Why?

Mr. John C. Cook: Because as it stands now, we think that the case is an improper construction of the law.

Unknown Speaker: What of state law?

Mr. John C. Cook: With regard to out-shipment -- the taxation of out-shipments of tangible personal property we --

Unknown Speaker: You don’t think you have any constitutional power to tax out-shipments of tangible personal property?

Mr. John C. Cook: That’s our argument.

Unknown Speaker: And the way the Court of Appeals puts you in the position, you do have it they say and you say it don’t have it under decisions of this Court?

Mr. John C. Cook: Yes, Justice.

Justice Potter Stewart: And this is going to embarrass the administration of your tax program and many other situations, is that it?

Mr. John C. Cook: Well, it will cause difficulties in administration as the tax program.

The administrator -- the Commissioner of Revenue has reviewed.

He has directed counsel to argue in this manner.

I feel that the case is arguable.

I don’t feel that as counsel, I am shirking my duty.

However, the position of the administrator is the one that has client that we’d hear to.

Justice Potter Stewart: Well, in that position, do I understand it correctly you’re submitting that the basic issue before us is whether or not this is personal property or services and that the court below is wrong in holding it was personal property and you’re asking us to hold that these were services?

Mr. John C. Cook: Yes, Justice Stewart.

Justice Potter Stewart: And having held that you’re then saying you’re asking us to hold that the tax imposed on services was constitutionally valid?

Mr. John C. Cook: Yes, Justice Stewart.

Justice Potter Stewart: Is that it?

Mr. John C. Cook: Yes.

Justice Thurgood Marshall: And what do we do with the judgment of the court?

Unknown Speaker: And your key --

Justice Thurgood Marshall: The judgment we affirmed in de novo --

Mr. John C. Cook: Yes, Justice.

Unknown Speaker: And your key submission I gather has to be that this is whether it’s on tangible or on services is a federal question?

Mr. John C. Cook: Yes.

Unknown Speaker: That none otherwise can we pass on it?

Mr. John C. Cook: Yes, Justice.

Unknown Speaker: All right.

Justice Potter Stewart: And this really is exactly the same position you have when a case was here before, isn’t it?

Mr. John C. Cook: Yes, Justice.

Justice Potter Stewart: Which cause us to remand the case to the Court of Appeals [Voice Overlap]?

Mr. John C. Cook: Yes Justice, we requested that we will be allowed to submit briefs after the case was remanded to the New Mexico Court of Appeals.

They said no briefs.

We made this same argument regarding the federal question nvolving the Equal Protection Clause at oral argument before the New Mexico Court of Appeals although it’s not reference in their second opinion.

Justice Potter Stewart: As such?

Mr. John C. Cook: As such.

Justice Potter Stewart: Tell me Mr. Cook, just a matter of curiosity.

What is the certiorari jurisdiction to your Supreme Court from the Court of Appeals and did they refuse to review it?

Mr. John C. Cook: Yes, Justice.

Justice Potter Stewart: I see.

How many are on your Supreme Court?

Mr. John C. Cook: Five, Justice.

Unknown Speaker: And one of them sat in this case in the Court of Appeals?

Mr. John C. Cook: Yes, Justice.

Unknown Speaker: That which --

Chief Justice Warren E. Burger: He is now moved.

Mr. John C. Cook: He’s now moved and he was the judge throughout the original opinions.

Chief Justice Warren E. Burger: Can you shed any light on why they denied this certiorari?

Was it possibly on the grounds that it is a de minimis in their view?

Mr. John C. Cook: Excuse me, Mr. Chief Justice on the reason why the New Mexico Supreme Court denied?

Chief Justice Warren E. Burger: Yes.

Mr. John C. Cook: I have no idea.

Unknown Speaker: Did you oppose it officially?

Mr. John C. Cook: No.

Unknown Speaker: Did you join in requesting it?

Mr. John C. Cook: No.

We did at after the initial case.

After the remand, we didn’t join in petition in New Mexico Supreme Court for certiorari.

Justice Potter Stewart: How much taxes are involved here in this case?

Mr. John C. Cook: I believe that total assessment was about $35,000.

Justice Potter Stewart: Is that the tax or assessment?

Mr. John C. Cook: Tax exempt interest.

Unknown Speaker: Do I understand it all is it like that happen again in the future as far as Evco is concern?

Mr. John C. Cook: Well, with regard to the question Justice Rehnquist asked the statutes of New Mexico have been amended.

Section 7216 (a) 14.12 came in after the period involving this assessment.

Now, that deduction provides for deduction for services performed in New Mexico when an initial use of the product of the services is outside New Mexico.

However, the buyer outside New Mexico is required to deliver a non-taxable transaction certificate regarding these sales.

So, if this matter had come up under current law and a certificate had been issued then the sale would’ve been deductible from a gross receipts tax.

Respondent submits that there was error of law present in the decision in New Mexico Court of Appeals on the first point.

That error presented to federal question on the ground that the states statute was held repugnant to the Equal Protection Clause of the Fourteenth Amendment, I have been over that.

Even if it is decided that in New Mexico Court of Appeals did not completely decide the first issue on the grounds that the state statutes were repugnant to the Equal Protection Provisions of the Fourteenth Amendment of United States Constitution.

The decision does not present -- does present an uncertainly as was present in Minnesota versus National Tea Company.

Respondent submits that if ambiguity is present that ambiguity should be resolved before the interstate commerce question is considered.

If the first issue of the case was decided on incorrect grounds that the exemption or deduction provisions which were limited to receipts from selling tangible personal property were repugnant to the Equal Protection Provisions of the Fourteenth Amendment, then the issue could be resolve as a question of fact rather than a question of law.

There were facts which would substantially support the Commissioner of Revenue’s decision that the transactions which resulted in the tax were found the performance of services if it’s a fact question.

If it is decided that the first issue was decided as a matter of state law or that the issue was clearly decided on both federal grounds and state grounds then respondent agrees with petitioner as to the decision on the Court of Appeals on the second point which concerns the application of the Commerce Clause Article 1 of Section 8 of the United States Constitution.

The decision of this Court in Freeman versus Hewit and J.D. Adams Manufacturing Company versus Storen hold that if there is a risk of a double tax burden, the tax would be forbidden under the Commerce Clause and that this would so even if apportionment was accomplished.

The reason we think this is the rule is because the destination state could imposed a use or compensating tax on a full value of the Adams when they came to rest in the destination state.

The destination state could also impose as an alternative and oppose the gross receipts tax on the receipts from the subsequent sale of Adams if the seller had sufficient contact with destination study as was done in General Motors versus Washington.

Respondents emphasize that our contention is that the risk of a double tax burden is all what is required to forbid the tax on receipts from an out-shipment of tangible personal property.

This we think is clear from the following statement and in J.D. Adams case.

The statement reads the vice of the statute as applied to receipts from interstate sales is that the tax includes in its measure without apportionment receipts derived from activities in interstate commerce and that the exemption is a such a character that if lawful in may in substance be laid to the fullest extent by States in which the goods are sold as well as those in which they are manufactured.

Interstate commerce would thus be subjected to the risk of a double tax burden on which interstate -- interstate commerce would then be subjected to the risk of a double tax burden to which intrastate commerce is not exposed and which the Commerce Clause forbids.

The Adam’s case distinguishes a gross receipts tax on out-shipments from a tax on manufacturing measured by gross receipts.

The taxes at issue here are clearly not taxes imposed on the activity of manufacturing.

In this case there was no showing in the record and no argument that there was a possibility of another state taxing or attempting to tax any receipts from the activities incident to the performance of the contracts.

Therefore, this Court said that Evco then had failed -- the Court of Appeals said, in its burden of showing an unconstitutional tax on interstate commerce and the question on multiple taxations was not before the court.

Respondent points out that it would be very difficult if not almost impossible for the record to reflect the possibility of another state taxing these transactions -- the possibility of another state taxing these transactions.

Also with respect to this, the following statement from Freeman v. Hewit seems particularly applicable.

The immunities implicit in the commerce clause and the potential taxing power of a state can hardly be made to depend in the world of practical affairs on the shipping incidents of the varying tax laws of the various States at a particular moment.

I have no further argument.

Chief Justice Warren E. Burger: Thank you.

You have a few minutes left do you wish anything further?

Rebuttal of Kendall O. Schlenker

Mr. Kendall O. Schlenker: Yes, may it please the Court.

I would like to respond to Mr. Justice Marshall’s question about the relief to be granted.

Mr. Justice asked if the state would be satisfied with a reversal sort terrifies us to think that maybe the Court is considering that.

We, if the reversal is to the whole the case we have been in according in number of times now about this liability.

We have asked that the Court reversed and remand with direction with regard to that second point which is the interstate.

Unknown Speaker: Well, you want to be -- you want the state told that you can’t collect your $35,000 that’s what you want?

Mr. Kendall O. Schlenker: Yes, Your Honor and this is not just an exercise on our part.

We -- a question was I asked of counsel about why couldn’t -- you know whether we could settle our own differences.

Certainly, we would have like to have done that.

I thought we have an opportunity when this case was sent back previously.

Chief Justice Warren E. Burger: Look, doesn’t the Attorney General of the State have that power?

Mr. Kendall O. Schlenker: If the Attorney General has that power, they declined to exercise it in this case.

Chief Justice Warren E. Burger: Because we can’t compel the Attorney General to do anything.

Mr. Kendall O. Schlenker: Yes, Your Honor.

If the -- however, if the Court of Appeals is reversed, I believe that the action will be clear then for the Bureau of Revenue [Voice Overlap].

Justice Potter Stewart: When -- you are the petitioner in this case --

Mr. Kendall O. Schlenker: Yes, Your Honor.

Justice Potter Stewart: -- and I understand you to say that you dreaded the idea of a reversal?

Mr. Kendall O. Schlenker: Well, if it’s a reversal on the whole case, this because --

Justice Potter Stewart: But there’s one judgment, isn’t there?

Mr. Kendall O. Schlenker: Yes, exactly.

Justice Potter Stewart: The one and only one, is there?

Mr. Kendall O. Schlenker: Except we keep facing this question about are the tangible personal property or services.

We done it three times now although the Court decided that we are selling tangible personal property.

It was reargued and the Court of Appeals again they held the same way, this tangible personal property.

And now we’re faced with the argument --

Justice Potter Stewart: And you and your opponent agree that if it is tangible personal property as the Court has held, no tax can be imposed?

Mr. Kendall O. Schlenker: Yes, Your Honor.

Justice William J. Brennan: And that’s what you want us to say?

Mr. Kendall O. Schlenker: Yes.

Justice Thurgood Marshall: Both sides want us to rewrite the Court of Appeals’ opinion?

Mr. Kendall O. Schlenker: On the second point, it is clearly in violation --

Justice William J. Brennan: You said the first point and the second point, I never -- I’m so confused by this.

What is the second point?

Mr. Kendall O. Schlenker: There were two -- there were two different amounts of tax involved.

The tangible personal property, one as a good portion of this case with respect to sales to the Government and sales to foundations and others --

Justice William J. Brennan: But they were statutory of those sales or statutory exempt if they were a personal property?

Mr. Kendall O. Schlenker: Yes, and the second point of these are the impacts sales.

Justice William J. Brennan: Which deprive private buyers?

Mr. Kendall O. Schlenker: Yes and that’s the point we’re seeking relief --

Justice William J. Brennan: Well, it’s not a reversal that you fear.

It’s a reversal short of canceling that $35,000 tax.

That’s what you fear.

Mr. Kendall O. Schlenker: Yes Your Honor, that’s exactly it.

Chief Justice Warren E. Burger: Thank you gentlemen.

The case is submitted.