COLONIAL PIPELINE CO. v. TRAIGLE

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Argument of R. Gordon Kean

Chief Justice Warren E. Burger: We'll hear arguments next in 73-1595, Colonial Pipeline against Traigle.

Mr. Kean, you may proceed whenever you're ready.

Mr. R. Gordon Kean: Mr. Chief Justice and may it please the Court.

My name is Gordon Kean.

I represent Colonial Pipeline Company here on appeal from the decision of Louisiana Supreme Court.

This case presents I think for a decision the question of just how far the states may go in fractionalizing the doing business concept in an effort to levy an excise tax on a purely interstate business before reaching out the limits permitted by the Commerce Clause.

This is the first time this Court had addressed itself to this specific question as I appreciate it since 1964 when the Court decided the General Motors case by a divided Court.

And thereon, there had been several state court decisions which I've related to the question as to which this Court declined to accept jurisdiction.

Another consequence of those actions by this Court in declining jurisdiction in the state court cases, it raised the issue.

The Louisiana Supreme Court commented in passing upon the question that there had been a serious inroad in the traditional immunity of purely interstate business operations.

For this reason, I think the, the Court here because of the facts and the background of the Louisiana law that I shall detail to the Court, had a unique opportunity to again declare where the line is to drawn.

The facts as I outline them in the law under which this case occur I think placed the issue in rather sharp focus, so that the Court is in a position to decide whether or not and how far the states may go in fractionalizing the business concept as a basis for the tax.

The Colonial Pipeline is a Delaware corporation.

It operates in interstate commerce, transporting for others as a common carrier under the jurisdiction of the Interstate Commerce Commission refined petroleum products for others.

Under these circumstances, this is not a case such as that before the Court in General Motors which was the last time this issue was before the Court because Colonial does not own and does not deliver in the State of Louisiana any of the products which it transports through its line.

Neither is this an in lieu tax case such as this Court used as a basis for distinguishing the Virginia franchise tax which was before the Court in the second Railway Express case from Virginia.

This tax is levied by the very expressed language of the Louisiana statute in addition to all other taxes which have paid by Colonial Pipeline in the State of Louisiana.

As I indicated, Colonial is an interstate county --

Justice William H. Rehnquist: What other tax is archived by Colonial --

Mr. R. Gordon Kean: Colonial passed a Mr. Justice Rehnquist, the property tax on its facilities which are located in the State of Louisiana.

It pays an apportioned income tax based upon income derived from its operations in that state.

It pays the sales and use tax in connection with such operations as it conducts in the state it pays all of that range of taxes that just as any other operator in the state would pay.

Our position is that with respect to the franchise tax that there is nothing which Louisiana gives to Colonial as a basis upon which to levy that tax.

Our position is that Colonial is operating in interstate commerce as a corporation and under the Constitution and statutes of the United States it hasn't derived the right to operate in interstate commerce and therefore, Louisiana gives to -- gives to Colonial with respect to the privilege of franchise tax nothing for which it could demand compensation.

We do not contend them that Colonial on a traditional case is decided by this case does not owe the property tax, that it does not owe the income tax, or the sales and use tax although which this Court is clearly recognized that the interstate carrier must be responsible for it.

Justice Harry A. Blackmun: Are you objecting to the imposition of the income tax by Louisiana as well?

Mr. R. Gordon Kean: No sir, we do not.

Justice Harry A. Blackmun: Well, if you prevail here, what's to prevent Louisiana from merely increasing the rates of its income tax of the same amount as your franchise tax?

Mr. R. Gordon Kean: Well, I think that if they increase the rates of the corporation income tax, they got to increase those rates across the board.

Certainly, they couldn't single out the interstate commerce as a basis for a differential in income tax payment in the State of Louisiana what it would otherwise establish for other companies operating in that state.

Justice Harry A. Blackmun: Let me put it in another way then, explain first the -- how that Colonial's tax burden in Louisiana is different from the burden born by domestic corporations?

Mr. R. Gordon Kean: As I view it, Mr. Justice Blackmun, colonial pays the property tax for which it has the right to and to get police protection for protection in the other protection that a state would afford on to those circumstances.

Colonial as an interstate carrier as I see it, if it is compelled to pay the Louisiana privileged tax for no right which Louisiana itself gives to Colonial.

Then under those circumstances, we have a tax on interstate commerce which I say to the Court is prohibited by the prior decisions of this Court and if is permitted then under the circumstances, we have a situation where the states can then control the question of interstate commerce against their principle that the Commerce Clause was created for.

Justice Harry A. Blackmun: Well then, I go back to my other question, why can't Louisiana accomplish the same thing by increasing the income tax across the board if you will?

Mr. R. Gordon Kean: Well, they could perhaps increase the income tax across the board so if all the corporations in the State of Louisiana pay an increased income tax and under those circumstances, it may well be that they would accomplish otherwise the same result.

But I say to the Court again that where this tax is levied on the privilege upon doing business in corporate form as the Louisiana Supreme Court construed it to be, then that gets to the authority and right of the corporation to exist and under those circumstances, if that corporation is engaged in interstate commerce, solely in interstate commerce.

And it's our view that the state has a right to the power of taxation on the privilege or the right to do business in corporate form to in effect destroy the state commerce.

Justice William H. Rehnquist: You could say then in effect that even though Louisiana can and I gather does impose the same tax on domestic corporations, it can impose it on your client.

Mr. R. Gordon Kean: That's correct.

My position Mr. Justice Rehnquist is that the privilege or the tax upon the right to do business in corporate form as the Louisiana Court construed this tax to be imposed on is a right which Colonial engaging as it does in interstate commerce derives from the Federal Constitution and therefore Louisiana gives to Colonial nothing for which they could expect recompense in so far as the privilege tax is concerned.

Justice Harry A. Blackmun: But why do you concede then that Louisiana can subject Colonial to an income tax?

Mr. R. Gordon Kean: For the simple reason that this Court has held in the prior cases that are fairly apportioned income tax is that it can be levied against an interstate carrier because it's on the income as distinguished from the right to carry on the interstate business.

Justice Harry A. Blackmun: You're making no claim here of unfair apportionment of the franchise tax?

Mr. R. Gordon Kean: No, sir.

I make no claim with unfair apportionment except for this laid, our claim on the basis that privilege tax or the franchise tax as imposed in the State of Louisiana and interpreted by the Louisiana Supreme Court is laid upon the privilege and under the circumstance violates the Commerce Clause of the United States Constitution.

Justice Byron R. White: How the -- how was the interstate portion, though not -- is it, is it some rough major of the income earned from doing business in Louisiana?

Mr. R. Gordon Kean: Yes, sir.

It's on the usual apportionment basis of --

Justice Byron R. White: Well, did you have a source of income then if you could see this in Louisiana?

Mr. R. Gordon Kean: Yes, sir.

Yes, sir.

Justice Byron R. White: And then you are doing business in Louisiana.

Mr. R. Gordon Kean: We are doing business.

We have a pipeline system of 268 miles out some 3500 miles of system in the State of Louisiana.

Justice Byron R. White: Well, you don't think -- do you think that Louisiana can -- could you qualify to do business in Louisiana.

Mr. R. Gordon Kean: We qualify in Louisiana to do intrastate business.

Justice Byron R. White: Yeah, and do you think -- do you think they could say, ?Well, if you want him to -- if you want the privilege of doing business in Louisiana, doing business for which you're going to generate an income in Louisiana, for that privilege, we're going to charge you $100.00 a year.

Mr. R. Gordon Kean: I don't think so, as long as that business was a purely intrastate business because under those circumstances, you give to the state the right to deny interstate business within its borders based upon the payment of some fee.

Justice Byron R. White: Well, that maybe -- that maybe true but at the same time you are doing business in Louisiana.

Mr. R. Gordon Kean: Yes, sir.

We -- we --

Justice Byron R. White: And generating income in Louisiana.

Mr. R. Gordon Kean: We operate a pipeline system in Louisiana.

Justice Byron R. White: And asking for the -- and asking for Louisiana's protection in the course -- in the course of doing so.

Mr. R. Gordon Kean: We asked nothing from Louisiana with respect to the right to carry on --

Justice Byron R. White: You're getting them anyway.

Mr. R. Gordon Kean: The right to carry on the interstate business because our position is under decided cases of this Court that the right to carry on a purely intrastate business is derived from the Constitution and therefore there's nothing for us to pay Louisiana in the way of the privilege tax to carry on that business.

Justice Harry A. Blackmun: Wasn't that argument came in Northwestern State's case as was argued here and rejected and I think I'm still troubled by the distinction between the income tax which you do not contest because of the Northwestern case and this one.

Mr. R. Gordon Kean: Well, as I appreciate the difference Mr. Justice Blackmun and the distinction made by the Court in the Northwestern State's case.

Here is that they were dealing there was an income tax and the Court there taking the position somewhat as the Court has done in the case of the property tax that this was not a tax on interstate commerce.

It was a tax on income and if that income tax was fairly apportioned, so you didn't have a multiplicity of the same kind of tax.

So as to burden interstate commerce than under the circumstances that that was a constitutionally acceptable tax.

Now, we're here dealing and I'll go back again if I may.

Let me try to give a little bit of the background of Colonial's operations in the State of Louisiana.

They operate -- Colonial operates a pipeline system they say transporting refined petroleum products for others of some 3,500 miles of pipeline all the way from Houston, Texas to the New York, Calberry.

Some 258 miles of that pipeline traverse the State of Louisiana.

The collector admits and the Louisiana Courts found that everything that Colonial was doing in the State of Louisiana was related to an integral part of its interstate movement of these profits.

Colonial does know intrastate business in the State of Louisiana.

Everything it does is related to interstate movement of its products and under the circumstances, there are no local activities as we view them.

In the State of Louisiana upon which Louisiana may lay the privilege tax, that is local activity sufficiently separate from the flow of interstate commerce to permit that tax.

Justice William H. Rehnquist: It does take oil out and put oil in at stations in Louisiana, doesn't it?

Mr. R. Gordon Kean: They pick up oil from a city service refinery in Lake Charles, Louisiana and they transport that further to the east outside the state.

They delivery refined products to a station in Baton Rouge from a refinery in Texas but there are no movements of its products from a point in Louisiana to another point in Louisiana.

All of the movements of its products are how will they may come, either come out in the state into Louisiana or from Louisiana out of the state and in the majority of the instances is primarily a matter of simply moving the oil or refined petroleum products through the pipeline that travels to the State of Louisiana.

So I say to the Court that there are no local activities separate from the interstate movement in Louisiana and under the circumstances, if we hold that this tax can be validly levied upon Colonial.

And I say to the Court, contrary to prior decisions of this Court in cases such as Spector Motors that we have now granted the state the authority to levy a tax upon the privilege of doing purely interstate business contrary to what I believe where the concept behind the Commerce Clause of the United States Constitution.

Now, let me make several further points with respect to the facts so that the Court will appreciate and I'm quoting the background of the statute, the Louisiana statute puts this matter in sharp focus.

Prior to 1970, the Louisiana tax was interpreted as being imposed upon the privilege of doing business and the same Colonial Pipeline Company litigated in the Louisiana Court the question of whether or not that tax so imposed violated the Commerce Clause in United States Constitution and the Louisiana courts held citing the Spector Motor case that the tax as applied to this purely intrastate operation violated the Commerce Clause and the Louisiana courts ordered a refund of the taxes which Colonial had paid in the protest in connection with the levy of the privilege statute.

Louisiana in 1970, made some revisions in the franchise tax so as to include what they call alternating incidents or alternative incidents.

Which in reality were nothing more than a restatement of what constituted doing business and the tax was paid under protest again and Colonial took the position that there had been no substantive change in the operating incidents of the tax and under those circumstances, the first Colonial case which have been decided by the Louisiana Court was dispositive of the issue.

The Louisiana District Court and the Louisiana Court of Appeals agreed and when the case went to the Louisiana Supreme Court under writs, the Louisiana Supreme Court took the position that in reality there was no substantive change in the statute that the tax even before the 1970 was not imposed upon the privilege of doing business but was imposed upon the doing of business in corporate form and then took the position that that doing of business in corporate form was a local activity upon which Louisiana could impose, place, levy this franchise tax without violation of the Commerce Clause.

I believe that this Court will read the statute before 1970 and after 1970, it will come to the conclusion as did the lower courts in Louisiana and in fact the Louisiana Supreme Court that there was no change in the operating incidence of the tax because doing business in corporate form was a manner in which you carried out this interstate business of Colonial and under the circumstances, the cases were parallel cases and should have reached the similar result.

Now, I suggest to the Court that there is no distinction.

As a matter of fact, it seems to me that there is more threat to the Commerce Clause by saying that you can impose the tax upon the -- on doing interstate business in corporate form than otherwise because that is the traditional method in which interstate business is conducted.

And under the circumstances, it appears to us that the case is in the same posture it was at the time of the first case but if we accept it as having some distinction by reason of the 1970 Amendment, I still say to the Court that this is a tax upon interstate commerce which this Court has recognized that beyond the bounds of the states with respect to the -- with respect to the Commerce Clause and under the certain statute that Louisiana Supreme Court ought to be reversed.

Now, the Louisiana Supreme Court that the operating incidents of the tax was and I quote, ?The local incidents tax is a form of doing business rather than the business done by that corporation and they emphasized it by saying that the thrust of the statute is the tax of doing business in Louisiana in corporate form and I don't believe that there is any distinction that makes the difference between a tax upon a privilege of doing business and the tax which imposes it upon the doing of business in corporate form.

Chief Justice Warren E. Burger: Do you know whether any of the airlines are subject to this tax, airlines that --

Mr. R. Gordon Kean: That are operating in Louisiana?

Chief Justice Warren E. Burger: Yes, without making any local stops except --

Mr. R. Gordon Kean: I don't know Mr. Chief Justice.

I don't know.

I've never explored that question with the collective revenue.

Chief Justice Warren E. Burger: I take it your view would be that Louisiana did not tax an airline that was coming in and landing merely at New Orleans and then picking up passengers and going out, discharging in picking up.

Mr. R. Gordon Kean: Well, it would depend I think on whether or not the Court could find from activities that the airline was conducting in the State of Louisiana that they were indeed engaged in local activities separate from that interstate operation which might then form the basis of the tax.

For example, if that airline was bringing materials into Baton Rouge, where it can maintain that warehouse and was there storing those materials for some peak of the time before it was delivered to its customers, then I would say that that constitutes an intrastate activity unrelated and unnecessary to carrying on the interstate business as they are and under the circumstances, the State of Louisiana would well have a basis for levying the tax upon the privilege of doing business based upon the imposition of it upon the local activity being conducted by that company, but where the sole and only activity done by the company in the State of Louisiana is that which relates to interstate commerce.

I say to the Court that you have to come to a different conclusion, otherwise, the states then have the right to determine whether or not corporations engaged in interstate commerce can truly exist in the state's in which they operate.

I think if the Court --

Justice William H. Rehnquist: Well, but you're protected to a certain extent by the fact that this tax applies equally to domestic corporation.

Mr. R. Gordon Kean: Well, this Court held Mr. Justice Rehnquist in Spector Motors which was dealing with the transportation operation.

Justice William H. Rehnquist: Well, isn't Spector pretty much of an anomaly?

I mean, it's really not consistent with Memphis case that went before and it's really not consistent with several cases that come afterwards?

I don't think that the cases which came after make any change in the law so far as Spector is concerned.

For example, the first Railway Express case in Virginia.

The Court reached the same, identical conclusion that it reached in Spector which was the way you had a tax imposed solely upon the privilege of doing interstate business it would violate it with the Commerce Clause.

Virginia then came back as the Court may recall in the second Railway case and provided that the tax was an in lieu tax.

In lieu of the ad valorem tax on intangibles and rolling stock of the way we express agency and under those circumstances, this Court characterized the Virginia tax in the second Railway case as being in a nature of an ad valorem tax which was acceptable under a long line of decisions that this Court had rendered.

But I know of no case, I know of no case which has been decided by this Court and Spector the first Railway Express case are to the contrast which holds that the states have a right to levy a franchise or privilege tax upon a business that's engaged exclusively in interstate commerce and it seems to me that in logic and in good reason, that has to be the case.

For example, in Spector and in the first Railway case, this Court established the rule which stated that the Commerce Clause prohibits a state franchise tax.

The operating incidence of which falls upon the privilege of carrying on exclusively and I emphasize the word exclusively interstate transportation in and through the state.

Now, there -- if we now permit contrary to what Spector holds, the states to say that we now have the right to tax the very business means by which an interstate carrier operates, then it has the right to tax the existence of that business.

And it has the right under those circumstances if we grant to the states the power to tax that business, going back over many years of history before this Court, the recognition and the power to tax includes the power to destroy.

Justice William H. Rehnquist: But you're protected by the principle that a tax on interstate commerce can't discriminate against interstate commerce and here, you don't really claim any discrimination.

Mr. R. Gordon Kean: No, I don't feel that interstate commerce is protected by apportionment of -- by apportionment of a privilege tax because the tax there is laid upon interstate commerce and no manner of apportionment can deny that fact.

And in Spector for example, this Court squarely said that the fact that the tax was fairly apportioned did not save the tax.

And I think it's logical and reasonable that that should be the case because even if you -- even if you apportion it fairly.

Nonetheless, you'll be on a position as I see it for the state to say, we give you the right to come into the state under these circumstances.

We lay down the conditions under which interstate commerce will be carried through the State of Louisiana and by that means are vested in the state the right to control and decide the matter on which interstate commerce can be conducted among the states contrary to the principle if the Commerce Clause was established to achieve.

Justice Harry A. Blackmun: But Northwestern States came along after Spector.

Mr. R. Gordon Kean: As my recollection, it did.

Yes.

Justice Harry A. Blackmun: And at least that was some kind of an incursion on Spector, wasn't it?

Mr. R. Gordon Kean: No, sir, but --

Justice Potter Stewart: That was before an income tax, was it?

Mr. R. Gordon Kean: That's what an apportioned income tax.

And my point is --

Justice Potter Stewart: This is an unapportioned franchise tax.

Mr. R. Gordon Kean: If you read --

Justice Harry A. Blackmun: But you're making the same argument here that was made in Northwestern States.

Mr. R. Gordon Kean: No sir, I'm not, because as I pointed out a moment ago, Northwestern States was dealing with an income tax.

Justice Harry A. Blackmun: Exactly and some states call an income tax is a franchise tax.

Mr. R. Gordon Kean: No, sir.

It may well be that some states do.

In some states measure their franchise tax by income, for example in General Motors, there was a franchise tax measured by growth receipts and I think perhaps and I think perhaps in the Spector case, there was a franchise tax measured by income.

But however it's measured under whatever circumstances, it has been stated to be imposed upon if it was a tax on interstate commerce, directly as distinguished from a tax on income which this Court held in Northwestern case, you kind of pull out here and therefore it's not a tax on the commerce itself.

Justice Harry A. Blackmun: No, I'm not blaming you for this argument.

I think you're forced into it by what they regard as the inconsistency of our decision to which Memphis, Spector, Northwestern States.

Mr. R. Gordon Kean: Well, I must say it, Mr. Justice Blackmun that in all of the cases which you dealt with the problem, the decisions have been by a sharply divided Court.

Justice Harry A. Blackmun: Indeed they have a --

Mr. R. Gordon Kean: As a matter of fact in the Memphis Gas versus Stone case, it was not even a majority opinion as the Court may recall.

It was a -- I think a four, two of three decision.

Anyway, it was not a five members of the Court who actually wrote the majority opinion.

So, I say to the Court that this case as I see it with the facts where we have no dispute whatsoever as to the interstate character of this common carrier pipeline.

Justice Harry A. Blackmun: I think we realized this and there's not any question about it but I'm just suggesting that the difference between Northwestern States in this case is a very thin one and this Court drew it but I think it's a very thin one.

Mr. R. Gordon Kean: I don't share your view Mr. Justice Blackmun that it is a thin one.

I think there are a lot of narrow constructions that you defined in this field.

But I can see in my own mind the great distinction between a fair labor portion income tax, while that the tax is upon the income as distinguished from a tax upon the privilege of doing interstate business, where the tax is imposed and levied upon the interstate business itself.

Justice William H. Rehnquist: Even though measured by income.

Mr. R. Gordon Kean: Yes, sir.

Even though measured by income.

Justice William H. Rehnquist: Does that make any sense to you just as a practical matter?

Mr. R. Gordon Kean: Yes, sir.

It makes sense in this sense because it seems to me that if this Court recognizes the right of the states to levy a tax upon the privilege of doing purely interstate business.

However that is measured, whatever it may be imposed upon and this Court has made the breakthrough which permits the states in my opinion to regulate interstate commerce contrary to the theory and purposed of the Commerce Clause.

May I save a few minutes please.

Thank you.

Chief Justice Warren E. Burger: Very well, Mr. Kean.

Mr. Cook.

Argument of Whit M. Cook, Ii

Mr. Whit M. Cook, Ii: Mr. Chief Justice and may it please the Court.

The sole issue presented to this Court by this case is whether or not the operating incidences of the Louisiana corporation franchise tax are sufficient basis to support the constitutional application of the tax upon Colonial.

I think that I'd like to point out a few pertinent sections of the statute before I go on through.

It's on page five of my brief.

Page five of my brief.

Louisiana revised statute 47-601 which it imposes the tax to states, imposition of the tax, ?

Every domestic corporation and every foreign corporation exercising its charter are qualified to do business or actually doing business in the state are owning or using any port or all this capital plant or any property in the state subject to the decline with other provisions of law shall pay an annual tax.?

I'll skip down to the incidences of the tax.

The tax levied herein is due and payable on anyone are all of the following alternative incidences: The qualification to carry on or to do businesses of the state or the actually doing business in the state in the corporate form.?

The statute defines doing business.

The term doing business as used herein shall mean and include each and every act, power, right, privilege or immunity exercised in the state as an incident to or by virtue of the powers and privileges acquired by the nature of such organizations as well the buying, selling, procuring of services or property.

Justice Harry A. Blackmun: Mr. Cook, for tax purposes, what's the difference between levying a tax or what's the difference between doing interstate business and doing interstate business in a corporate form?

Mr. Whit M. Cook, Ii: That is the heart of this case today.

Justice Harry A. Blackmun: And let me add that at a second question.

If Louisiana can impose it on doing business in a corporate form, may it impose a tax on doing interstate business in a partnership form or in a sole proprietorship form?

Mr. Whit M. Cook, Ii: The Louisiana Supreme Court recognized that the state may not and the state has not attempted here to impose a tax on the privilege of doing interstate business in Louisiana.

What the state is attempting and what they have taxed is the corporation that has, which is on page 26 of the jurisdictional statement, has qualified to do business in Louisiana.

In 1962, when Colonial first came into the state and begin laying its pipeline, it did quality with the secretary of state to do business in Louisiana.

They have received a qualification from the secretary of the state that authorized them to do anything and everything to the domestic corporation that another domestic corporation has an authority to do, only limited by their own articles in incorporation.

I would like to point out that the legislative intent was put into the statute so there would be ambiguity about what the purpose of the tax is.

There'd be any purpose of the Section to require the payment of this tax to the State of Louisiana by domestic corporations for the right granted by the laws of the state to exist as such, a corporation or organization rather.

And by both domestic and foreign corporations for the enjoinment under the protection of the laws of the state of the powers, rights, privileges, immunities derived by reason of the corporate form in existence and corporation.

Justice Lewis F. Powell: Mr. Kean, as I read the statute, there's no apportionment of any kind on this tax, is that correct?

I beg your pardon, I got the wrong advocate, Mr. Cook, I'm sorry.

Mr. Whit M. Cook, Ii: No, sir.

That's not correct.

The revised Section 47:606.

Justice Lewis F. Powell: What page in your brief is that on?

Mr. Whit M. Cook, Ii: That's set out in the appendix to my brief on page 45.

I would like to add that Colonial is not complaining about the apportionment formula or the measurement of the tax.

What they have complained of the imposition of the tax at all.

Justice Lewis F. Powell: As a matter of information, what's the basis of the apportionment, I've overlooked that.

Mr. Whit M. Cook, Ii: I'll have to go over that.

Justice Lewis F. Powell: Well, if you don't remember just go ahead.

I don't want to interrupt you.

Mr. Whit M. Cook, Ii: Now, what is the difference between tax in the privilege of doing interstate business and the tax imposed in this case?

It's very simple.

The state is not taxing the business of transporting natural gas to the state.

The tax is not levied on that business.

The tax is levied on a corporation which is voluntarily coming into the state and qualified with the secretary of the state to do business in the state.

Justice Potter Stewart: Do you have to take -- impose a tax on a privilege of doing this business in a non-corporate form and have then complemented tax?

Mr. Whit M. Cook, Ii: The tax is only imposed upon corporations.

It's not imposed --

Justice Potter Stewart: No, I'm -- we're talking about constitutional power.

Mr. Whit M. Cook, Ii: Yes.

Justice Potter Stewart: And I read it, I know that this tax is imposed on corporations and you justified by saying that at least arguendo that the beyond the power of Louisiana is to tax that business as a business since it's purely interstate.

But the state said this is valid because Louisiana is taxing it because it's in corporate form.

And I'm asking you if Louisiana would have the constitutional power to conduct this business because the incidence of it was that it was conducted in non-corporate form?

Mr. Whit M. Cook, Ii: If the state granted to the partnership or whatever other type of association it was benefits, local benefits upon which he can levy the tax, yes.

It does do this to corporations that qualify with the secretary of state.

They do have benefits of the normal benefits of any domestic corporation would derive from the state.

Justice Potter Stewart: And there's nothing left of the interstate immunity, is there?

Mr. Whit M. Cook, Ii: The interstate immunity still exists --

Justice Potter Stewart: If the state tax -- if the state can tax a purely interstate business by way of a franchise tax on the basis of the form on which it's conducted, whether it be corporate on non-corporate and there's nothing left to the exemption, is there?

Mr. Whit M. Cook, Ii: I agree with your statement, except for the one point.

The state here does not do that and there's not an attempt to do that.

Colonial Pipeline came to Louisiana and qualified voluntarily for whatever reason to do business in Louisiana and the extent of their use of that authority is their own business.

The state is taxing the corporation because it's qualified and because as the Supreme Court of Louisiana held, they received protection of the lawful activities which they conduct in the state which as in the case of Memphis Natural Gas.

Justice Potter Stewart: That's true.

That would be true of an individual proprietorship for running this pipeline, wouldn't it?

It presumed they receive the police and fire protection and the other protection that the state gives.

Mr. Whit M. Cook, Ii: That is true.

He would receive those protections but he would not receive all the corporate benefits which corporations --

Justice Potter Stewart: And what are these benefits?

Mr. Whit M. Cook, Ii: As pointed out by Louisiana Supreme Court.

Justice Potter Stewart: This is isn't a Louisiana corporation.

Mr. Whit M. Cook, Ii: No, sir.

They -- but they have qualified to do business in the state.

Chief Justice Warren E. Burger: Could they have run the pipeline through without qualifying?

Mr. Whit M. Cook, Ii: Yes, they could.

The state did not require them to do so.

Justice William H. Rehnquist: I suppose if they haven't qualified, they would have run the risk that in the event of an explosion.

The stockholders could be held individually liable under Louisiana law?

Mr. Whit M. Cook, Ii: Yes.

Now, Mr. Kean --

Justice Harry A. Blackmun: The statute which prevents some from going into the state court if they have not qualified, do you have such statute?

Mr. Whit M. Cook, Ii: We do have such a statute.

However, the corporations doing exclusively interstate business are excluded from the provisions of that statute.

And I point that out in my brief as also have been the State Supreme Court holding that has -- that's upheld that statute in the same as the instruction of the statute.

Now, appellant has pointed out several cases attempting to argue that the tax imposed by the statute is a license tax as a conditioned precedent for doing business in Louisiana and several -- the several cases pointed out by appellant brought up that issue that you just asked.

These cases were cited by the Louisiana Supreme Court when it held that the requirement that the state qualify, I mean, the corporation qualify in the state in order to be able to use the courts of the state only apply to corporations doing intrastate business.

It did not apply corporation doing exclusively interstate business.

Justice Harry A. Blackmun: Have I heard your answer to Justice Stewart's question which I think followed mine as to whether in your opinion Louisiana have the power to tax the doing of interstate business in an individual where sole proprietorship or a partnership on?

Mr. Whit M. Cook, Ii: Yes, I did answer that.

They would if they gave to the individual -- to the partnership, benefits, local benefits emanating from the State of Louisiana, emanating from the sovereign power of the State of Louisiana.

Justice Harry A. Blackmun: Well, suppose Colonial were owned Mr. Colonial who was an individual, could they tax him?

Mr. Whit M. Cook, Ii: Well, could they tax him?

I don't know of any benefits that they are passing to him.

Justice Potter Stewart: Well, may they take their place specifically expressed the congressional intent to make the incidents of the taxation the privilege of doing this business as an individual proprietorship.

Mr. Whit M. Cook, Ii: Well, he would have the right to receive the same police protections that Colonial receives in this case.

However, he would not have the right to receive the corporate benefits that Colonial does.

Now, I would like to point out that --

Justice Potter Stewart: Could you answer my Brother Blackmun's question?

Justice Harry A. Blackmun: Or Mr. Justice Stewart's question.

Justice Potter Stewart: Oh, yeah.

It's really the same question.

Mr. Whit M. Cook, Ii: I thought that I did.

My answer would be only if there were local benefits given to.

Justice Potter Stewart: Well, you mentioned fire protection.

Mr. Whit M. Cook, Ii: Yes.

I said, in this case, in the Colonial case, the corporation receives numerous benefits as the corporation.

In addition to the fire protection, the use of the highways, the school system --

Justice Potter Stewart: Suppose -- conferred by Delaware whether New Jersey or wherever this place is incorporated?

Mr. Whit M. Cook, Ii: The tax, the power of the state to tax is only upon entities emanating from the state.

Do you like -- for example, a domestic corporations, are former domestic corporations in Louisiana, where the state will have the power to tax a domestic corporation.

Justice Harry A. Blackmun: You don't really --

Mr. Whit M. Cook, Ii: Colonial, voluntarily came into Louisiana, qualify with the secretary of the state, received the certificate of --

Justice Potter Stewart: Did they get that free to that?

Mr. Whit M. Cook, Ii: Pardon me?

Justice Potter Stewart: Did they get that free or to that to pay a fee, filing fee?

Mr. Whit M. Cook, Ii: I can't answer that question.

Justice Potter Stewart: They probably did, so when can't the state --

Mr. Whit M. Cook, Ii: Filing fee.

Chief Justice Warren E. Burger: Well, when I go -- if I should go, I'll never have but fashioned go to the Mardi Gras in New Orleans, I get police protection and fire protection so that that incident alone isn't very much of a basis for levying taxes, is it?

Mr. Whit M. Cook, Ii: I agree with that.

Chief Justice Warren E. Burger: It's the corporate form.

Mr. Whit M. Cook, Ii: It's the corporate -- it's the corporation itself.

Justice Thurgood Marshall: Well, that don't they pay property taxes?

Mr. Whit M. Cook, Ii: They do.

They pay a -- they pay a local property tax as they go --

Justice Thurgood Marshall: Well, is that -- is that or is that not for fire protection, the police protection?

That's what the property tax, isn't it?

Mr. Whit M. Cook, Ii: That goes to the local parishes for their use, yes.

This -- the local -- the property tax is not a state tax.

They are local -- they are parish tax.

Justice Thurgood Marshall: There is not a corporate tax.

He'd not -- they already paid the property taxes.They pay income tax, right?

Mr. Whit M. Cook, Ii: That's correct and they do pay a local property tax.

Justice Thurgood Marshall: So, what is this other benefit they get, in addition to all others?

Mr. Whit M. Cook, Ii: The state is levying a tax on the corporation, on the corporate form of existence.

Justice Thurgood Marshall: And it gives what in return?

Mr. Whit M. Cook, Ii: It gives to the corporations the various corporate benefits they received by virtue of being incorporated.

Justice Thurgood Marshall: Name one or two of them?

Mr. Whit M. Cook, Ii: The absence of individual liability.

The transfer of assets through the -- through stock, cost annuity of business, centralization of management.

The normal corporate benefits that any corporation receives.

Justice Thurgood Marshall: And that's given by Louisiana?

Mr. Whit M. Cook, Ii: It is to the state's -- to the corporations which one are domestic or two which have qualified --

Justice Thurgood Marshall: One of it you said, didn't apply to interstate?

Mr. Whit M. Cook, Ii: Pardon me.

Justice Thurgood Marshall: You say, one of those benefits didn't apply to interstate corporations, didn't you?

Mr. Whit M. Cook, Ii: It wouldn't but the corporation has voluntarily qualified in the state.

This is no different from the case in the Stone v. Interstate Natural Gas Company or really the Memphis Natural Gas case except in this case.

The corporation qualified in Louisiana to do business.

In Memphis Natural Gas case, they do not qualify to do business in Louisiana -- in Mississippi. In the Stone case, they did qualify.

They did only interstate business in the Stone case and in the Memphis Natural Gas case.

In the other cases cited by me in our brief to this Court, each of the higher state courts which has considered the incident of a tax as one being imposed upon the corporate existence to corporate form has upheld the validity of the state's power to tax this incident.

Now, appellant cites or states that the taxing question is the same as equivalent of, or is an effective condition precedent to Colonial doing interstate commerce in Louisiana.

I would like to point out and I made the statement before that the State of Louisiana did not require Colonial to come into Louisiana and qualify as a pre-condition for them to do in their interstate business.

Now, the cases cited by Mr. Kean in support of his decision are not applicable in this case.

Each of those cases, there was an attempt by the state to exclude a certain type of business like the express companies and one case, the pipeline company, and to require them before they did business in the state, a license in order to be able to do that business.

Louisiana has not done that.

Louisiana has only taxed the corporation which has voluntarily qualified in the state.

As I pointed out earlier to Mr. Justice Blackmun, Louisiana does not require that the corporation qualify in order to be able to use the course of the of the state.

There was intimation to that effect in the case of Graham Manufacturing Company v. Rolland and I pointed out that the Louisiana Supreme Court so held.

Louisiana does have an occupational license tax or license tax similar to the cases that Mr. Kean cites in his argument.

They are imposed by other statutes, of Title 47, Section 341 through 405.

This tax, this occupational license tax, is imposed upon individuals, partnerships, or corporations or anybody that comes in before or does the certain types of businesses, trades or professions conducted in Louisiana.

It makes no difference the type of business that's done.

It is a precondition of doing that type of business and it only applies to intrastate business done.

The appellant cites the enforcement provisions of the Louisiana taxing statute as adjoining with the tax in question to be an effective license tax or condition precedent on doing business in Louisiana.

Namely, he cites Title 47, Section 401.

That section only applies to the occupational license tax imposed by sections not in question before this Court.

I would also like to point out that this -- the enforcement provisions applied -- that the other enforcement provisions cited by him apply to all state taxes.

The constitutionality of this enforcement provisions has not been drawing question in the courts below nor as Colonial complained of the enforcement provisions in the courts below.

I would like to point out some of the facts about this case as far as the amount of investment in the State of Louisiana.

Its true Colonial owns and maintains 258 miles of pipeline in the state.

They have an investment there of cost of $40 million.

Chief Justice Warren E. Burger: So, they're paying property taxes on that, aren't they?

Mr. Whit M. Cook, Ii: Correct.

All I'm doing is showing the extent and the size of their investment there.

They are -- they're doing business.

Chief Justice Warren E. Burger: Well, but you've taken care of that with the property tax, haven't you?

Mr. Whit M. Cook, Ii: That is -- yes, sir.

They -- this is one-tenth of their total assets, capital assets.

They also see substantial revenues that are apportioned to state.

There the tax -- one of the taxable years in question are 1970.

Colonial had growth receipts of $102 million, a net income of $25 million, $2 million only which was apportioned to Louisiana.

Justice Potter Stewart: Tax about --

Mr. Whit M. Cook, Ii: That's correct.

Chief Justice Warren E. Burger: The income tax.

Mr. Whit M. Cook, Ii: That's correct.

In addition --

Chief Justice Warren E. Burger: Now, that's what every domestic corporation --

Mr. Whit M. Cook, Ii: That's correct.

Chief Justice Warren E. Burger: Put on each of these --

Mr. Whit M. Cook, Ii: Yes, sir.

There's no difference between the interstate corporation that or Colonial in this case and to our foreign corporation and a domestic corporation that is a Louisiana domicile.

I would also like to point out that --

Chief Justice Warren E. Burger: Now, what's -- what's the counterpart tax of a domestic corporation if you spell that out for me again?

It corresponds to the tax in question in this case.

Mr. Whit M. Cook, Ii: It is the same tax.

Now, the --

Chief Justice Warren E. Burger: Well, the domestic corporation, let's assume that you have one that went from Baton Rouge to New Orleans if that were feasible, domestic entirely.

They pay the income tax, they pay the property tax and then what else do they pay?

Mr. Whit M. Cook, Ii: They would pay the corporate franchise tax imposed by the statute in question.

I would also like to point out that Colonial when they built their pipeline across the State of Louisiana utilized the state's courts for their appropriation of the -- of various properties and to build their pipeline.

Their appropriation powers came from the state, the state gave to the common carriers and to petroleum pipelines the right to utilize appropriation powers in the state courts to build their pipeline.

Chief Justice Warren E. Burger: Well, if the -- if the individual that was postulated by I think Mr. Justice Stewart and Mr. Justice Blackmun had started this pipeline in Texas and went all the way to the east coast, what would be the situation on -- would he be able to condemn lands?

Mr. Whit M. Cook, Ii: Would it be a common carrier?

Chief Justice Warren E. Burger: It's a common carrier.

Mr. Whit M. Cook, Ii: I would have to look this Act --

Chief Justice Warren E. Burger: Wouldn't that might be quite important?

Mr. Whit M. Cook, Ii: Yes.

Chief Justice Warren E. Burger: In this case?

Mr. Whit M. Cook, Ii: Well, no sir because it has not been issue in the case.

Chief Justice Warren E. Burger: Now, you're speaking of the power to eliminate domain is it your --

Mr. Whit M. Cook, Ii: Okay, I'll -- if we are talking strictly of the power the state to do it, then yes.

The state is granting the individual powers that come from state law not from the federal law.

Chief Justice Warren E. Burger: Yes, but you wouldn't be taxing this individual or would you?

Would you be levying this tax on that individual?

Mr. Whit M. Cook, Ii: No.

Justice William H. Rehnquist: Are there any individuals that you know of in Louisiana that have $40 million invested in a transcontinental pipeline?

Mr. Whit M. Cook, Ii: No, there's none.

Justice Harry A. Blackmun: But you might have individuals that have a substantial some invested in a trucking concern running from Texas to Mississippi.

Mr. Whit M. Cook, Ii: That's correct.

Justice Harry A. Blackmun: But I'm just wondering what your last argument.

What pertinency it has in view of the fact that you catch them for property and income tax as you're not boot strapping because -- in saying because this is a substantial investment we tax them there, therefore, we can tax them here also, are you?

Mr. Whit M. Cook, Ii: No, I'm not.

I was simply pointing out the extent of the investment in the state and the fact that they had received for example it appropriation benefits from the state law from the state and not the Federal Government.

Chief Justice Warren E. Burger: But that's not -- if I understood your response correctly, that's not any different from what it would be if Mr. H. L. Hunter over in Texas, had to individually build a pipeline or had run a truck line across?

Mr. Whit M. Cook, Ii: That's correct.

If -- my answer -- my answer to Mr. Justice Blackmun and Mr. Justice Stewart's question is if the state grants to the individual or to a partnership or to any type of association benefits that emanate from the state and not from the Federal Government then it's within the power of the state to tax that benefit.

Chief Justice Warren E. Burger: But I thought you would concede it that they would not levy this tax on the individual?

Mr. Whit M. Cook, Ii: They would not levy this tax and the state is not attempting to levy this tax on the individual.

It is in fact a corporation tax.

It is imposed only on corporations for the privilege of existing in corporate form.

Justice Harry A. Blackmun: What Mr. Justice Stewart said, "We're not talking about exactly what the state has done here."

We're speaking of constitutional power and I wonder would you ever answer that question?

Mr. Whit M. Cook, Ii: I attempted and I'll attempt to do it again and that is this.

If the state grants any powers, or rights, or privileges, or immunities, or benefits of any nature to individuals; that is subject to the state's power to grant to the individual and is subject to taxation, yes.

The state would have power to tax that, the state --

Justice Harry A. Blackmun: Give me an example of this because I detect, I think an inference that the only thing granted Colonial is the right to do business in corporate form, is this what you're saying?

Mr. Whit M. Cook, Ii: That is what is being taxed.

The state seized upon the local activities or local incidences that are spilled out in this statute to support that.

The only thing that is being taxed is the corporate entity.

That is correct.

Justice Harry A. Blackmun: Are there any other benefits that Colonial receives from Louisiana?

Mr. Whit M. Cook, Ii: The benefits are the normal corporate benefits that any other corporation, domestic or foreign receives.

Justice Harry A. Blackmun: But don't they have a fire protection all the rest to this kind of thing and is this answered by Mr. Justice Marshall's comment or that's taken care of by the property tax?

Mr. Whit M. Cook, Ii: No, sir.

The property tax in Louisiana is a local tax by the local parishes.

It does go for road improvements, fire protections and things of that nature.

It does not pay for the state police power or the police work.

The State does have a different police set up between the local parishes and the state.

They do protect colonial in the state.

Justice William H. Rehnquist: Well, you referred to before didn't you to the limited liability, not necessarily that the state spends money to give Colonial.

But that Louisiana recognizes limited liability on the part of a corporation which is qualified to do business in the state and the other incidents of corporate life that it presumably doesn't have to recognize but does recognize.

That really aren't arguably taken up by the property tax or the income tax.

Mr. Whit M. Cook, Ii: That is correct.

Justice William H. Rehnquist: And it's taxing all corporations that do business in the Louisiana domestic or foreign for these particular privileges, isn't it?

Mr. Whit M. Cook, Ii: That's correct.

I would like to point out that the case cited -- the case cited by Mr. Kean in his argument in support for the fact that this tax is beyond the power of the state to tax is the case of Spector Motor Company v. O'Connor.

In that case, the incidence of the tax was not the corporation or the corporate form on doing business.

The incidence of the tax was the doing of business in that state.

Just as our occupational license tax subjected by other statutes imposed a license tax for doing a particular type of business or doing a particular type of trade or profession.

And I submit and we submit that it is a distinct difference between taxing the corporation for the privilege of existence and enjoyment of the privilege immunities in the state in taxing a business being done in the state.

That's all.

Chief Justice Warren E. Burger: Very well, Mr. Cook.

Mr. Kean, you have a minute.

Rebuttal of R. Gordon Kean

Mr. R. Gordon Kean: Thank you.

May it please the Court?

I'd like to make several comments and one has to do with the argument of counsel concerning the fact that Colonial qualified to do business in the State of Louisiana, and he seems to place great emphasis on that fact even though the Louisiana Supreme Court did not.

The fact is and if the Court will look at exhibit B 6 in the appendix, you'll find that Colonial qualified to do intrastate business in the State of Louisiana and if this Court will review the case of Ozark Pipeline Corporation versus Monier, which is a 266 U.S.

The Court will find there the question being weighed concerning the qualification of an interstate carrier in the state at issue there and the Court held that it was a question of qualification.

But a question of what is done pursuant to that qualification and where in the Monier case, nothing had done other than interstate commerce, the Court held that the mere qualification had no bearing nor created any right in the state to impose a tax.

Chief Justice Warren E. Burger: Well, a right doesn't have to be exercised necessarily to be valuable, does it?

I think in the case of the interstate carrier.

If you -- the only basis upon which you could levy the tax, if it please the Court, is on the basis of some intrastate activity and under those circumstances, if no intrastate activity is engaged in, it does become important.

Yes, sir.

Thank you.

Chief Justice Warren E. Burger: Thank you, gentlemen.

The case is submitted.