GURLEY v. RHODEN

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Argument of Charles R. Davis

Chief Justice Warren E. Burger: We'll hear arguments next in 73-1734, Gurley against Rhoden.

Counsel, you may proceed whenever you're ready.

Mr. Charles R. Davis: Mr. Chief Justice and may it please the Court.

My name is Charles Davis of Jackson Mississippi, along with Mr. Walter Armstrong, Mr. Hubert McBride of Memphis, and Mr. Tom Tardy, also of Jackson.

I represent the petitioner in this case, W. M. Gurley, doing business as Gurley Oil Company.

This action was brought by Mr. Gurley for the recovery or refund of sales taxes imposed by the State of Mississippi.

The trial court and the Supreme Court of Mississippi denied Mr. Gurley’s claim.

This Court granted certiorari on November 18, 1974.

The issue on this appeal and in the proceedings below was stipulated by the parties and that is contained at page 36 of the 10 appendix, and that issue is whether or not federal and state gasoline excise taxes are properly or legally includable in gross proceeds of sale or in the sales price of gasoline under the Mississippi Sales Tax Act.

Now Mr. Gurley's contention is that he collects these two excise taxes.

That is the federal excise tax on gasoline and the state excise tax on gasoline.

And that he makes this collection as an agent of the United States and of the State of Mississippi.

Chief Justice Warren E. Burger: If I get you're argument correctly in your briefs Mr. Davis, you're saying the state has no more right to tax him for being this conduit than they could tax an Internal Revenue Agent who collects the money and passes it on to the collector in Mississippi, is that about it?

Mr. Charles R. Davis: That's correct Mr. Chief Justice.

We are saying that he merely acts as an agent because of the point in the process of distribution than he happens to follow.

He is the closest to the consumer of the gasoline and logically and practically, the tax scheme of both statutes imposes this duty of collection, reporting and payment to the tax authorities on him.

Justice William H. Rehnquist: There is something of a difference though in your case in so far as it turns on the federal statute and in that party your case where it turns on two state statutes.

I take it in the latter case the Supreme Court of Mississippi is free to decide who the tax is imposed on and what role the tax collector has in a way that it isn't where you've got a federal statute?

Mr. Charles R. Davis: Mr. Justice, its our contention that this Court under the circumstances of this case may disregard the characterization of that Mississippi excise tax by the Supreme Court of Mississippi and the designation of the tax as a privilege tax by the legislature and --

Justice William H. Rehnquist: In what authority would we have for doing that?

Mr. Charles R. Davis: Well, we've cited authorities in our brief which we believe indicates that where constitutional questions are presented such as we have here where if Mr. Gurley is taxed a sales tax by the state of Mississippi is imposed upon Mississippi gasoline excise taxes in his hands that that's to take his property without due process of law, and therefore we submit that this Court may look to the operation and effect of the Mississippi statute and determine that despite the ruling by the Mississippi Supreme Court that it is a tax on the consumer of gasoline.

Chief Justice Warren E. Burger: But that the construction is the construction by the highest court of the state is it not of the state statute?

Mr. Charles R. Davis: Yes sir, that's correct.

This Court in several cases which we have cited in our brief has disregarded state court characterizations and some of our statutes involving a gasoline excise taxes.

And we submit that under the circumstances here that you may do so.

Of course, there's no contention as you point out Mr. Justice that this Court does not have authority to determine the incidence of the federal excise tax on gasoline.

Unknown Speaker: You're in this point that we've just been discussing you're relying on the -- that part of your brief that begins on page -- part 6 beginning on page 14 of your reply brief, is it not?

Mr. Charles R. Davis: Yes, Your Honor.

Unknown Speaker: That portion of your --

Mr. Charles R. Davis: And the case is cited there.

Unknown Speaker: And the case is there cited.

Mr. Charles R. Davis: So, we are asking this Court to determine the incidence of these two gasoline excise taxes and secondly, we are saying that the Court may in the case of Mr. Gurley, who is actually a retailer of gasoline that it may determine that even though the incidence is on the seller that if the taxes accrue at the time of sale that's its impossible for these taxes to be included in gross proceeds or as a part of the sales price, and therefore, the State of Mississippi cannot impose a sales tax on it at that juncture, the sales tax accruing at that time simultaneously on the retail sale of the gasoline.

I would like to briefly state to the Court a little bit about Mr. Gurley's operation.

The amount of the taxes here was actually stipulated and that's in summary of that is found at page 36 of the 10 appendix.

Mr. Gurley protested vigorously the payment of these taxes.

He refused to pay the taxes and additional assessments were rendered by the State of Mississippi, at which time he did pay them but throughout the period involved in the case at bar, he bore himself the burden of all these taxes that he seeks the refund for it.

Mr. Gurley is a small independent gasoline operator.

It is located in West Memphis Arkansas and he has a number of retail outlets in the northern portion of the State of Mississippi.

He purchases his product there in the Memphis area and transports it by his trucks to the retail outlets where the product is sold directly to the ultimate retail consumer of the gasoline for use on the highways.

Unknown Speaker: Does he have any connections with the Phillips down there?

Mr. Charles R. Davis: Not that I'm aware of Your Honor.

That's I have read is a similar --

Unknown Speaker: It's a similar operation.

Mr. Charles R. Davis: -- operation in the State of Mississippi.

Unknown Speaker: Right.

Mr. Charles R. Davis: So, there's no middleman or wholesaler or distributor involved here in the case of Mr. Gurley.

Now, the Mississippi Sales Tax Act imposes a 5% tax on the gross proceeds of any retail sale of tangible personal property.

Now, this sales tax is computed by Mr. Gurley and we've summarized that computation at page 12 of our very petitioner’s main brief.

As I indicated, he purchases the product over at around Memphis for approximately -- well, at the time of the trial --

Unknown Speaker: These prices are a little out of date now, isn't it?

Mr. Charles R. Davis: Mr. Justice, that's absolutely correct, but at that time back in 1971, he bought the gasoline at about 14 cents per gallon, imposed his markup to a retail price of the actual gasoline of 20 cents per galloon.

And at that point, Mr. Gurley imposed the 5% Mississippi sales tax on the 20 cents.

Now, he separately, he contends, collects the federal excise tax on gasoline and the state excise tax on gasoline, and during all of this period, he did not impose nor pass on any 5% sales tax on the two excise taxes.

Unknown Speaker: When does Mr. Gurley pay the federal tax?

Mr. Charles R. Davis: Mr. Gurley pays the federal tax.

He actually makes remittances to federal depositories in much the same manner as social security and withholding remittances are made on the first -- within three days after the 1st and 15th of the each month.

However, he files a quarterly return which actually determines the final amount of his payment.

And we submit that --

Unknown Speaker: That there's no issue here about that 1 cent sales tax, is it?

Mr. Charles R. Davis: No, that's right Your Honor.

Unknown Speaker: That's not in this case at all?

Mr. Charles R. Davis: That's not an issue here we're attempting to get a refund of additional sales taxes above that 1 cent.

Unknown Speaker: But the general 1 cent sales tax is not here an issue at all?

Mr. Charles R. Davis: That's correct.

I wish to point out that Mississippi is one of few states that actually imposes a sales tax on gasoline --

Unknown Speaker: In addition to this --

Mr. Charles R. Davis: -- at all --

Unknown Speaker: Right.

Mr. Charles R. Davis: -- on any part of the price of gasoline.

Unknown Speaker: But in Mississippi, is the sales tax required to be passed on to the seller and not to the buyer stated separately?

Mr. Charles R. Davis: Yes Your Honor, it is.

Unknown Speaker: Now, how about the -- but there's no requirement that an excise tax, the federal excise tax to be passed on to anybody?

Mr. Charles R. Davis: There is no expressed statutory requirement, that's correct but we submit that a view of the entire operation that affect both statutes compels a conclusion that that these taxes be collected from the ultimate consumer on the actual number of gallons --

Unknown Speaker: Do you know excise tax is paid only once?

How about a sale to Mr. Gurley?

Mr. Charles R. Davis: It's only paid once Your Honor.

Its -- the statute provides in 26 U.S.C. 4083 that the sale to a bonded producer is a tax free sale, so that the tax is only collected at the point closest to the ultimate retail sale of the gasoline.

Unknown Speaker: Now, you mean from Mr. Gurley?

Mr. Charles R. Davis: In Mr. Gurley's case, there's only one place where it can be collected because he buys it from the manufacturer or supplier and makes it the direct sale to the ultimate consumer.

Now, in other --

Chief Justice Warren E. Burger: We'll resume there after lunch.

Mr. Charles R. Davis: Thank you.

Your Honor.[Lunch Recess]

Chief Justice Warren E. Burger: Mr. Davis, you may continue.

Justice William H. Rehnquist: Mr. Davis, just -- just before lunch you were asked I believe by Justice White whether the Mississippi sales tax or the federal gas tax had provisions for passing on or separate statement.

Let me ask you the same question about that Mississippi gasoline tax.

Is there any provision in the statute which imposes that tax that either requires it being passed on or prohibited being passed on or requires it to be separately stated?

Mr. Charles R. Davis: Your Honor, at the time of -- at the time period of the case at bar which is from 1968 through sometime in 1971, for approximately three-fourths of that time, there was a provision in the Mississippi gasoline excise tax statutes that provided that the seller could pass on to the ultimate consumer the amount of the Mississippi gasoline excise tax.

They let Mississippi legislature repeal that provision in 1970.

But for most of the period of time in question, we did have that provision.

Unknown Speaker: What (Inaudible)?

Mr. Charles R. Davis: It simply repealed Your Honor the provision allowing or expressly allowing the passing on the tax and we submit that in practice, there has been no change in the operation and effect of the statute.

Unknown Speaker: Don't you mean Gurley still charge the same price after the repeal as he did before?

Mr. Charles R. Davis: Yes, sir.

Unknown Speaker: A price had included the tax?

Mr. Charles R. Davis: That's correct.

Unknown Speaker: While before, did he ever sign which indicated that the tax was being in-charge to consumer separately from the rest of the price?

Mr. Charles R. Davis: Your Honor, there is some evidence in the record to the effect that decals were posted at most of his retail locations.

There is no statutory requirement to that effect but this was done by Mr. Gurley.

Unknown Speaker: This was done now before the repeal?

Mr. Charles R. Davis: Yes, sir.

Unknown Speaker: And after the repeal what then?

Mr. Charles R. Davis: The same practice --

Unknown Speaker: The same --

Mr. Charles R. Davis: -- applies.

Unknown Speaker: So that the decal actually says what?

Add it to the price as whatever that number cents?

Mr. Charles R. Davis: 7 cents per gallon --

7 cents per gallon.

Mr. Charles R. Davis: -- at that time, its now 9 cents gallon.

Unknown Speaker: Yes but that's what it appear?

Mr. Charles R. Davis: Yes, sir.

Unknown Speaker: That included in the price of 7 cents per gallon, now 9 cents per gallon representing the Mississippi franchise tax, that is the excise tax.

Mr. Charles R. Davis: Excise tax on gasoline and 4 cents per gallon for the federal excise tax on gasoline.

Unknown Speaker: Mr. Davis, Mr. Gurley is a retailer, isn't he?

Mr. Charles R. Davis: Yes, sir.

Unknown Speaker: How does he come within the terms of 26 U.S.C. 4081 on page 3 of your brief?

Mr. Charles R. Davis: Yes, Your Honor.

A later section of 26 U.S.C. provides a definition of the term producer --

Unknown Speaker: Right.

Mr. Charles R. Davis: -- under the statute.

Unknown Speaker: That's 4082?

Mr. Charles R. Davis: Yes.

Unknown Speaker: And how does a retailer fit within that definition?

Mr. Charles R. Davis: I believe that it provides that any purchaser of gasoline, tax-free is considered to be a producer under the federal statute and --

Unknown Speaker: Oh!

And so Gurley didn't pay the wholesaler or the producer any tax?

Mr. Charles R. Davis: That's correct.

That purchase was tax-free and the tax does not come into play in the case of Gurley particularly until the time of the retail sale to the ultimate consumer.

Unknown Speaker: Is that the way the oil business is normally conducted or is this unusual?

Mr. Charles R. Davis: Well, it certainly not unusual in the case of those operators similarly situated to Mr. Gurley and the scheme of the statute is that the tax be collected at the source closest to the ultimate retail sale.

Unknown Speaker: How do you derive at from this language?

Mr. Charles R. Davis: The language does not expressly state that but suppose there were a series of sales to various wholesalers or producers and a chain of distribution.

Those sales are tax-free because a sale to another producer under the statute does not give rise to the tax liability.

It only arises at the end of the chain of distribution or at the point closest to the ultimate retail sale and --

Unknown Speaker: If Gurley had bought from a wholesaler, will the wholesaler have been obligated to pay any tax?

Mr. Charles R. Davis: No, Your Honor because of the fact that Mr. Gurley is a producer under the statute and is properly qualified.

That would be a tax-free transaction.

Unknown Speaker: Suppose he just own a one filling station and were a retailer and nothing else that if he bought from a wholesaler, who would pay the tax?

Mr. Charles R. Davis: If he was qualified under the federal statute and it is possible I think for him to so qualify, then he would pay it but he were not, then the tax would be remitted by the wholesaler.

Now, we cite in our brief a reference to the revenue ruling which indicates that it's the intent of the statute to impose the tax at the latest point of distribution and that the liability of the producer that is responsible for emitting and reporting does not accrue until there’s been an ultimate retail sale.

Now, --

Chief Justice Warren E. Burger: Was that partly -- is that partly because that could be one way to separate tax free sales from other sales?

Certain purchase --

Mr. Charles R. Davis: I'm not sure I understand your --

Chief Justice Warren E. Burger: Certain purchasers of gasoline purchase tax-free, do they not?

Mr. Charles R. Davis: Yes, Your Honor.

Chief Justice Warren E. Burger: Depending on the use?

Now, is this statute geared to that proposition if it were taxed back at an earlier point you'd have no way of at least it would be very difficult to separate them, would it not?

Mr. Charles R. Davis: Well, I think perhaps that is one purpose.

Of course --

Chief Justice Warren E. Burger: I remember reading it, to where in your brief is that, what page?

Mr. Charles R. Davis: The refund provisions are referred to, I believe on pages 14 and 15.

Chief Justice Warren E. Burger: Well, go on with your argument, I just wanted to locate that point.

Mr. Charles R. Davis: So, we submit if it please the Court that the resolution of this basic issue of the validity of the inclusion of state and federal gasoline excise taxes in the sales tax based is to be determined by this Court looking at the actual effect and operation of the two gasoline excise tax statutes.

The purpose of both of these statutes is unquestionably to raise funds to finance and construct highways on the state and federal level.

The intent of Congress is obviously to impose that tax upon the persons who use these highways and to measure the tax in proportion to the use of the highways by the ultimate consumer of the gasoline and the operation and effect of the statute is clearly one that measures the tax on that sale of each galloon that goes into the car on the highway, there's no tax ever paid for a nonhighway use of any sort if it's use for farming purposes or local transit systems or if it spilled out on the ground or if it's destroyed in the fire.

Chief Justice Warren E. Burger: Or for lawnmowers of whatever --

Mr. Charles R. Davis: Or for lawnmowers or whatever unless it's actually used on the highways, there's no tax paid.

That's the ultimate effect and operation of both the federal and the state gasoline excise tax is in question.

Unknown Speaker: How about the federal tax, does it have the same wide exemption or is it exempt on the farm, agricultural use?

Mr. Charles R. Davis: Yes, it does Your Honor.

They both have the same broad exemption for nonhighway use.

They break it down into different categories are briefed on but basically, it has that exemption on that nonhighway use.

Justice Byron R. White: So where do you go from here.

Suppose it is on this -- on the consumer?

Mr. Charles R. Davis: It's on the consumer Mr. Justice White, we submit that it's impossible for the Mississippi sales tax to be imposed on that portion of the price that Mr. Gurley collects from the consumer.

This is not a part of its price.

It's not a part of his gross proceeds of the retail sale.

Justice Byron R. White: Well, its part of the money and part of the price he takes from the consumer in the sense that he collects that money from them.

Mr. Charles R. Davis: That's correct, it is.

Justice Byron R. White: And if he didn't collect it from them he would have to pay it anyway?

Mr. Charles R. Davis: That's right.

Justice Byron R. White: So he does collect it from the consumer for a reason that's to keep it from coming out of his own pocket.

Now, why can't the -- why can't the state put a sales tax on it, that part of it, because of immunity or what?

Mr. Charles R. Davis: Well, that's one reason and the case of the federal tax, this is money that he holds in his hands that belongs to the United States Government and to tax that would be to tax the federal government.

In the case of the state tax, again, its moneys that belongs to the state government and to tax those state taxes would be to take Gurley's property without due process of law.

And we submit that this is unconstitutional exercise of the taxing power of the State of Mississippi to make those impositions of the sales tax.

Unknown Speaker: But I -- I suppose in both these cases, once the -- if this case were decided against you, Gurley would never suffer any loss in the future?

He just collected whatever it was, the total tax where it load from the consumer?

Mr. Charles R. Davis: It --

Justice Byron R. White: What it loses maybe he can go by supplying depends, he might lose -- he'd say I'd sell less gasoline.

Mr. Charles R. Davis: Well, that's correct and that --

Justice Byron R. White: Because the --

Mr. Charles R. Davis: -- that aspect of is very real in the State of Mississippi where all of the bordering states because of this sales tax have a price of 3 or 4 cents per gallon less than we do in Mississippi.

Justice Byron R. White: I see.

Chief Justice Warren E. Burger: Now, on the federal statutes relating to withholding taxes and I suspect on social security taxes there are some special sanctions for failing to deliver them that is there constituted trust fund, are they not?

Mr. Charles R. Davis: Yes Your Honor and that's true in the case of --

Chief Justice Warren E. Burger: Now, you have a parallel, an exact parallel here?

Mr. Charles R. Davis: I would think that that it would be very nearly exact.

Chief Justice Warren E. Burger: Well, do you have an exact parallel in term of -- terms of sanctions for not paying it other than just the normal penalties for not paying a tax?

Mr. Charles R. Davis: That's correct.

Chief Justice Warren E. Burger: Well, what are they?

Mr. Charles R. Davis: Well, there are criminal --

Chief Justice Warren E. Burger: That's the general term for that.

Mr. Charles R. Davis: -- penalties that are provided --

Chief Justice Warren E. Burger: Spread it out a little, will you, before you?

Mr. Charles R. Davis: The federal statute and the state statute both provide that it's an absolute liability of the seller to collect and report these money in the --

Chief Justice Warren E. Burger: Do you think in both cases there are trust fund concept?

Mr. Charles R. Davis: We submit that that is the case Your Honor and that on the failure to do so, he is liable for -- to criminal penalties in the statute.

Unknown Speaker: This is a -- does 5% on 11 cents about a half cent a gallon is --

Mr. Charles R. Davis: Yes.

Unknown Speaker: -- how much money we're talking about here?

Mr. Charles R. Davis: In this case we’re talking about approximately $100,000.00 over a period of about six years and we -- as indicated in our brief, we have filed for a later period that involves about --

Unknown Speaker: Well, it's been update 9 cents, usually 8 now its 9 cents.

Mr. Charles R. Davis: It's originally 7 and now its 9.

Unknown Speaker: Mr. Davis, was the constitutional issue raised before the Supreme Court of Mississippi?

Mr. Charles R. Davis: Yes Your Honor, it was.

We did not brief it in and discuss it as thoroughly as we have in this Court.

Unknown Speaker: It wasn't -- wasn't addressed by the Mississippi Supreme Court, was it?

Mr. Charles R. Davis: No, it was not.

Unknown Speaker: And was it raised in the complaint?

Relied upon?

Mr. Charles R. Davis: It -- I believe that it was pleaded in -- if you read the context of the factual allegations and quotations of our statutes in there, I think it's inescapable that the constitutional issues there, yes sir.

Unknown Speaker: Mr. Davis, do I oversimplify in describing your argument as one that this in effect is a tax on a tax?

Mr. Charles R. Davis: Well, Your Honor we do not condemn the concept of tax on a tax as such.

Unknown Speaker: Do you think that's alright?

Mr. Charles R. Davis: But in this case, we think it's not alright for the reasons that we've stated.

Unknown Speaker: When would it ever be alright?

Mr. Charles R. Davis: Well, in almost every retail sale of any product, you have built in to the price taxes that accrued back up the line.

Unknown Speaker: Directly?

Mr. Charles R. Davis: Well, we're submitting that that's the difference.

Here, the time of approval here is different.

Unknown Speaker: With all the state tax, it seems to me that there's nothing -- if the state wants to tax its own property and there's nothing wrong with that like there is the state trying to tax what you say is federal property.

Mr. Charles R. Davis: Your Honor, I think it is because on the state tax, they would be extracting from Mr. Gurley.

Unknown Speaker: Well, not in the picture, he could just add it on at the price.

Mr. Charles R. Davis: Well, but at the time of the collection, they would be extracting a sale tax.

Unknown Speaker: Not extracting it, there he is charging the seller; he is charging the buyer for it, like he has to.

Mr. Charles R. Davis: That's true.

He does pass it on but he makes the payment --

Unknown Speaker: I know but as long as he passes it on doesn't come out of his pocket and you have another ground on the federal side that he just can't tax the federal government?

Mr. Charles R. Davis: That's right.

Justice William H. Rehnquist: Would you say that the State of Mississippi couldn't measure its sales tax on the gross business done by a retailer even though some of the retailer's sales were on a credit basis in the people to -- purchasers to folder?

Mr. Charles R. Davis: I'm not sure I understood your question, Your Honor.

Justice William H. Rehnquist: Well, supposing you have a 2% sales tax on a druggist and its on gross business he does and his gross business is $2 million during a particular tax period but in fact a $100,000.00 of those sales were for credit, he never got the cash and a certain number of those default so they're bad debts, would you say that the state had to constitutionally recognize an allowance for a bad debt there?

Mr. Charles R. Davis: There is a liability here in our case for collection and payment clearly by the seller.

If he does not make that collection, he's liable for the payment but we submit that that situation must be distinguished from the actual legal incidence of the tax and that is no more than a case of an agent having the duty to make this collection.

We have not covered the point of a credit sale in our discussion of this case.

I -- normally, the -- of course the retail sale of gasoline is not done on a credit basis.

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

Mr. Charles R. Davis: Thank you, Your Honor.

Chief Justice Warren E. Burger: Mr. Gholson.

Argument of Hunter M. Gholson

Mr. Hunter M. Gholson: Mr. Chief Justice and may it please the Court.

At the outset of the argument before the respondent, I want to confess and apologize for two factual errors which appear in the respondent's brief.

I do not think that either of them go to the merits of the argument but do I apologize for them.

Although the Mississippi Supreme Court very clearly based its decision which is here under consideration on a treatment of the Panhandle Oil Company case decided by this Court with respect to its dealing with the Mississippi gasoline excise taxes as they existed at the time of that decision.

We have incorrectly categorized those taxes as sales taxes in our brief.

They were excise taxes as Mr. Davis points out in his brief.

Chief Justice Warren E. Burger: You have specific corrections you want us to make on particular pages or you just want to --

Mr. Hunter M. Gholson: I just want to apologize for having referred to that as a sales tax.

Chief Justice Warren E. Burger: Alright.

Mr. Hunter M. Gholson: With respect to our argument on the fact that the decision of the Mississippi Supreme Court is not subject to review by federal courts with respect to the incidence of the Mississippi tax which is in point for of our brief, we have cited two cases and quoted from one of them.

We cite Society for Savings versus Bowers and Agricultural National Bank versus State Tax Commission.

We have attributed the quotation to the Bowers case; it actually comes from the Agricultural and National Bank case at the point where Bowers is cited.

And Mr. Chief Justice, unfortunately, you have been furnished with a copy of the first brief before it was reprinted and it is not in the proper form, this brief has been reprinted and I believe the other justices have the --

Chief Justice Warren E. Burger: Your blue-covered brief?

Mr. Hunter M. Gholson: Yes sir, that's properly printed, the other one was not.

With respect to the constitutional argument that has been made here, I can find an answer to Mr. Justice Powell's question.

I can find no reference in the original complaint to the Constitution of the United States.

The statutes are cited and it is alleged in the complaint that Mr. Gurley is entitled to a refund by reason of those statutes.

I believe it would be fair to argue on behalf of the respondent that for this Court to determine that the Mississippi case must be reversed would require this Court to rule that the Mississippi sales tax laws are unconstitutional or violative of the United States Constitution.

Section 27-65-3 of the Mississippi Code of 1972 provides that gross proceeds of sale shall include among other things all taxes except those which are specifically exempt by a subsequent section.

The brief for the petitioner on page 15 makes reference to this problem.

The federal diesel fuel tax is specifically exempt because it is a part of Chapter 32 of 26 United States Code, a part of Chapter 31 which is entitled Retailers Excise Taxes and the diesel tax is a part of that, the diesel taxes are exempt.

On the contrary, the gasoline excise tax of the United States is not included in that chapter but is in Chapter 32 entitled Manufacturers Excise Taxes.

And it is for that reason that under the sales tax statute of Mississippi, Mr. Gurley is not entitled to deduct the federal gasoline excise tax as he is not entitled to deduct the Mississippi gasoline excise tax.

Justice Lewis F. Powell: May I get back a moment Mr. Gholson to your suggestion that the complaint did not alleged any federal constitutional defect?

Mr. Hunter M. Gholson: I believe that's correct.

Justice Lewis F. Powell: Then may I ask you, here is the question.

Mr. Hunter M. Gholson: Yes, Justice Powell.

Justice Lewis F. Powell: What did as regards to your state tax, the Mississippi Supreme Court addressed and decide the federal constitutional claim in respect to that tax?

Mr. Hunter M. Gholson: The Mississippi Supreme Court decided that under the -- their understanding of the prevailing rules of this Court that the federal excise tax is legally an incident placed upon wholesaler, Mr. Gurley, and not upon the consumer and for that reason is not -- is a part of the gross sale price.

Justice Lewis F. Powell: So that federal question clearly --

Mr. Hunter M. Gholson: Yes.

Justice Lewis F. Powell: That your Court decided?

Mr. Hunter M. Gholson: Yes.

Justice Lewis F. Powell: Now, how about the attack upon the inclusion of the state franchise tax, the 7 cents.

Mr. Hunter M. Gholson: The state franchise tax has been determined by the State Supreme Court to be legally upon the wholesaler, because it is imposed at the moment that the tax is brought into the state and I think this gets us --

Justice Lewis F. Powell: Very well but what I'm getting -- I'm trying to get to is in sustaining it, did they sustain it against the claim that had violated the federal constitution?

Mr. Hunter M. Gholson: I found nothing in the complaint that alleges --

Justice Lewis F. Powell: No, in the opinion to --

Mr. Hunter M. Gholson: No sir, no sir.

I do not believe they raise them after that question.

Unknown Speaker: You say he did not.

Justice Byron R. White: But they -- your Court had felt that it must decide the federal question as to where the federal excise Tax has its burden or its incidence?

Mr. Hunter M. Gholson: Yes, sir.

Justice Byron R. White: And you agree with that?

I mean you don't -- you may not -- and you do agree with the way they decided that?

Mr. Hunter M. Gholson: Yes, Mr. Justice White.

Justice Byron R. White: But the -- so that the federal -- you're not suggesting this Court has no jurisdiction here because the federal question wasn't decided by the highest court of your state?

Mr. Hunter M. Gholson: No sir, we're not arguing that at all.

I simply -- I recognized that this Court has the duty to review the decision --

Justice Byron R. White: Supposed we -- supposed we disagreed with the Mississippi Supreme Court that the incidence of the federal tax is on the consumer?

Mr. Hunter M. Gholson: Then I think it would be the duty of this Court to reverse as to the federal tax, but I do not think it would be --

Justice Byron R. White: What would if -- what if we just said we reverse the taxes on the consumer and we reverse, what would the Supreme Court of Mississippi do then under its tax laws?

Because that isn't a -- this isn't a constitutional question, this question I just -- were just talking about.

Mr. Hunter M. Gholson: What --

Justice Byron R. White: This constitutional question is just a -- it's just an interpretation of the federal statute erroneously and if we decided against you, and so as so, what would the Mississippi Court do if that’s all we said?

Mr. Hunter M. Gholson: I believe that's a sort of two-pronged question Mr. Justice White.

First, the sales tax statute of Mississippi by its term includes the federal excise tax in the based for sales --

Justice Byron R. White: No matter what?

Mr. Hunter M. Gholson: No matter whether it's an incident placed on the consumer or the wholesaler.

Justice Byron R. White: Why did they -- why then did the Mississippi Supreme Court go to great -- such great pains just to look at where the incidence of the federal tax was?

Mr. Hunter M. Gholson: They decided it on the theory that the incidence of the federal tax was on the wholesaler.

Justice Byron R. White: Yes, but it's irrelevant under your statute, you're suggesting.

Mr. Hunter M. Gholson: I am suggesting that one can make a strong argument for the fact that in order to reverse as to the federal tax.

This Court would have to declare that sales tax provision unconstitutional.

Justice Byron R. White: No, you just told me no.

You just said no that if we disagreed with you as to the incidence of the federal tax, we should reverse.

Mr. Hunter M. Gholson: Then I would like to change my answer to your question because unless she finds that the sales tax provision as interpreted by the Supreme Court of Mississippi is unconstitutional federally --

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

Mr. Hunter M. Gholson: -- then it would be irrelevant.

Justice Byron R. White: And I suggest that the -- you're suggesting the Mississippi -- that your Court went through a wholly unnecessary useless procedure in deciding where the incidence of the federal tax was?

Mr. Hunter M. Gholson: I would never be --

Justice Byron R. White: And I suggest they -- I suggest they felt it was essential to decide it?

Mr. Hunter M. Gholson: Well, I would never be quoted as making the first statement.

I think that they could have decided it as they decided it or on the second theory which we discussed.

Chief Justice Warren E. Burger: What about the language of 55 – 27-55-11, maybe you've gone over that but it went over my head if you did.

The language is, “shall pay for the privilege of engaging in such business, a tax equal to 8 cents a gallon,” is that just a new statute?

Mr. Hunter M. Gholson: That is the new statute but that does not --

Chief Justice Warren E. Burger: No, this is in which --

Mr. Hunter M. Gholson: -- differ from the language, the material language Mr. Chief Justice has existed since 1928 when Mississippi amended its statute in response to the Panhandle decision.

Chief Justice Warren E. Burger: Well, to what extend did the Supreme Court of Mississippi rely on that language that it's a tax on the privilege of doing business rather than a tax on the consumer per gallon?

Mr. Hunter M. Gholson: That is the gravamen of the Mississippi opinion.

Chief Justice Warren E. Burger: Well then that's why I got lost on some of the colloquy.

I thought that this statute was an explicit effort to separate this from the normal tax which is placed on the consumer, the sales tax on commodity, and here, it's a tax on the privilege.

Mr. Hunter M. Gholson: We were speaking now of the Mississippi --

Chief Justice Warren E. Burger: Yes.

Mr. Hunter M. Gholson: -- excise tax.

Chief Justice Warren E. Burger: Right, that the --

Mr. Hunter M. Gholson: And it is clearly is that a the tax used when the commodity comes into the state and payment must be remitted by the 20th of the following month irrespective of any date of sales or instant of sale.

Now, with respect to Mr. Justice White's question, I'd understood they referred to the federal excise tax and its inclusion in the sales tax based by virtue of this Mississippi decision which was made on the basis of the fact that as a matter of federal law that is an incident, a legal incident placed upon the wholesaler and not upon the consumer.

I think that it is rather essential to the issue here to get down to something that was asked by Mr. Justice Powell and that is whether Mr. Gurley is a wholesaler or a retailer.

I think he is in fact both because under the definition of producer or distributor, he is that and becomes liable for the tax when he brings it in to Mississippi.

The fact that he chooses to sell it directly to the ultimate consumer does not prevent him from being under the language of the statute a producer or distributor.

The effect of Mr. Gurley's position being sustained would be that all those retailers who purchase from wholesalers would have to include the excise tax in the sales tax base but Mr. Gurley would be excused from including it.

And therefore, we would argue that if there are any federal constitutional issues here, they mitigate in favor of the system that the respondent has urged and that the Mississippi Court has adopted.

Chief Justice Warren E. Burger: Mr. Davis I thought said on the question of where this tax fell that would -- it was limited to tax on gasoline used on the highway, do you agree with that?

Mr. Hunter M. Gholson: No sir, I do not.

Chief Justice Warren E. Burger: The statute seems to be pretty clear in saying, for sale or for sale, use on the highways, storage, distribution, or for any other purpose.

Now, does that mean that lawnmower gasoline is subject to the tax?

Mr. Hunter M. Gholson: Any provision for relief to people who bare the economic burden of this tax and who are not highway users come from other statutes, other sections giving rights of credit or refund.

I do not believe --

Chief Justice Warren E. Burger: Is that a farmer -- the farmer who uses it on his tractor can keep a record and go and get a refund?

Mr. Hunter M. Gholson: That's correct.

Chief Justice Warren E. Burger: I suppose then the lawnmower fellow, if he -- if it was worth his trouble could do the same under your statute, is that right?

Mr. Hunter M. Gholson: That is my understanding, yes.

The Illinois Court in its decision in the Martin case, very similar to this case under consideration addressed itself to that point and said that these are not technically refund statutes, they are really credits given to people who bare an economic burden contrary to the intention of the statute.

Mr. Davis has argued that it is the intention of the Congress to tax the users of the highways to pay for highways by such taxes.

I think it could be as logically argued that it is the intention of the excise statutes to tax the people who engaged in the business of selling gasoline for use on such highways.

Certainly, the language of the statute itself as pointed out by Mr. Chief Justice says that it is a privilege tax placed upon doing that business.

I would like to mention that with respect to state court interpretations of the legal incidence of the United States excise tax, Pennsylvania, Michigan, North Dakota and lower courts of New York if taken the view that that federal tax is a consumer or user tax.

Illinois, New Jersey, Indiana, Alabama and Georgia as well as Mississippi have taken the view which we espouse here.

Now, in the reply brief for the respondent, a considerable attack is made upon the citation of the Ferrari case from New Jersey saying that that's only a tax commission case.

That case has since been affirmed by the New Jersey Superior Court and reported and a certification has been denied by the New Jersey Supreme Court.

That brings us to the point where the highest court of New Jersey has acted on that case, and I have those citations if it would be proper to give them.

The 127 New Jersey Supreme Court 240 317 Atlantic 2d 80, is the opinion, the subsequent denial of certification is without opinion.

Justice Byron R. White: Could I -- makes -- did you -- did the State Supreme Court construe the state excise tax on gasoline to be a tax on the seller?

Mr. Hunter M. Gholson: That is correct.

Justice Byron R. White: Now, that's a state law question, isn’t it?

Mr. Hunter M. Gholson: Yes, sir.

Justice Byron R. White: Now, assuming that's correct, do you understand there to be any challenge then to the collection of a sales tax on the total sales price including the tax?

Mr. Hunter M. Gholson: I understand that the petitioner here is challenging the validity of that determination by the Mississippi Supreme Court.

Justice Byron R. White: Well, I know but that just a state law question.

Mr. Hunter M. Gholson: That is our position entirely Mr. Justice White.

Justice Byron R. White: And if -- he gets to his constitutional questions only if the tax is on the consumer?

If you construe the excise tax to be on the consumer.

Mr. Hunter M. Gholson: We believe that the earlier precedents of this Court would say that the state determination of that state statute as to its legal incidence is final.

Justice Byron R. White: Different from the federal question?

Mr. Hunter M. Gholson: Yes sir, yes.

I think that if this case is -- if this Court affirms the position of the Mississippi Supreme Court as to the federal statute, then there would be no question about the state statute.

It could affirm as to the state statute but not as to the federal.

Unknown Speaker: Well, what's the federal question involving the state -- imposition of the sales tax on the state franchise tax?

What's the better --

Mr. Hunter M. Gholson: I do not believe there is a federal question on the imposition of the state.

Unknown Speaker: Then is this to suggest that at least as to the sales tax as imposed on the state franchise tax, the 7 cents we have no jurisdiction to treat the --

Mr. Hunter M. Gholson: It is our position that this Court is bound by its earlier precedents to honor the state determination of the state tax and we so on in our brief.

Unknown Speaker: But you do can agree that the imposition of sales tax on the federal excised tax of 4 cents is here?

Mr. Hunter M. Gholson: Yes sir, yes sir.

But that -- and that because of the conflict among the states in interpreting the legal incidence of the federal tax that this Court must determine that question.

Justice Byron R. White: That's the one you reached.

Mr. Hunter M. Gholson: I would like to point out some distinctions in our situation and that of that of the trustee theory of tax collection advanced by the petitioner page 36 of his brief.

The petitioner cites a number of cases in which the merchant or some other person has been held to be a trustee for the federal government in the collection of certain federal taxes.

In the principal case cited in the body of the brief, Pazner (ph) versus O'Connell, the jewelry excise tax as I understand the statute was placed upon the retail sale to the customer and that made the jeweler a collector or trustee.

Likewise, the toll bridge tax in the United States versus Washington Toll Bridge cited in the footnote was imposed on the person who was paying for the use of the toll bridge by statute, again a trustee.

The United States versus First Capital National Bank was a tax imposed upon the price of admission to collegiate athletic functions by the United States and again as a trustee situation.

We submit that that is entirely distinct from the instant case in which both the federal and state statutes are imposed upon the producer or wholesaler.

We would submit that there is nothing in the cases which have been decided by this Court since the Panhandle Oil Company decision which give credence to the argument of the petitioner that this Court has determined that the federal gasoline excise tax is placed upon the consumer in the King and Boozer decision which we think specifically overruled in part the Panhandle decision.

The opinion of the Court stated to the extent that this Court had adopted a doctrine of economic burden as determining legal incidence, that doctrine was repealed.

In the subsequent case of Kern-Limerick cited by the petitioner, no modification of King and Boozer was done by this Court, but there was simply a finding that as a matter of fact, the United States Navy was the purchaser of tractors and therefore was immune from the placement of the Arkansas sales tax which was placed on the consumer.

We would submit that the language of the Illinois Court in the Martin case, its rational as adopted by the Mississippi Court in this case is persuasive of the fact that the federal tax is not a tax placed upon the ultimate consumer.

That it is a tax placed upon the wholesaler.

The question was asked by Mr. Justice Stewart as to whether or not the Mississippi sales tax is in issue and I understood counsel to say that the validity of the Mississippi sales tax is not in issue.

We would submit again that if the language of the Mississippi sales tax law is accepted as constitutional and valid.

That that language itself includes both of this excise taxes in the tax based from which the sales taxes are computed.

The question has been asked several times as to whether or not the Mississippi Law requires that the excise tax be passed on to the consumer.

The answer to that question is definitely no.

In the statute before its last amendment in 1970, there was a provision that the tax could be passed along to the consumer and that provision was eliminated.

There has never been a provision that the tax must be passed along to the consumer and this question was addressed in by the Georgia Supreme Court in the Thoni Oil cases in which the Georgia Court held that the federal tax was includable because it did not have to be passed on except as an economic burden if at the discretion of the payer of the tax.

While on the other hand, the Georgia statute was so written that the Georgia tax would be passed on.

We believe that this is a valid distinction and an additional basis under which the position of the Mississippi and Illinois and New Jersey courts should be sustained.

Unknown Speaker: What's the Mississippi situation now?

That the state tax cannot be passed on?

Mr. Hunter M. Gholson: No, no.

the authority to pass it on has been eliminated from the statute.

Unknown Speaker: Expressly?

Mr. Hunter M. Gholson: Yes.

Unknown Speaker: But what is the situation?

May it be passed on or no?

Mr. Hunter M. Gholson: As an economic burden as this Court and others have said, all cost of doing business are in effect passed on.

Justice Potter Stewart: But this -- and this in practice is passed on, is it not?

Mr. Hunter M. Gholson: As an economic burden, yes sir.

Justice Potter Stewart: Well, as a tax?

Mr. Hunter M. Gholson: But the question that's been asked about whether or not the price specifically showed that the tax was excluded.

The price on the pump itself did not.

It included the excise taxes in the price.

Justice Potter Stewart: Without separate specification?

Mr. Hunter M. Gholson: That's correct, but there were decals which Mr. Gurley in his testimony alleged that he had at his service station which showed that taxes broken out of --

Justice Potter Stewart: So much for per gallon and so much state taxes, so much federal taxes.

Mr. Hunter M. Gholson: Yes sir.

If there are no further questions, this concludes the argument for the respondent.

Thank you.

Chief Justice Warren E. Burger: Thank you Mr. Gholson.

Thank you Mr. Davis.

The case is submitted.