COMPLETE AUTO TRANSIT INC. v. BRADY
Complete Auto Transit was a Michigan corporation doing business in Mississippi. Complete shipped cars into the state where they were distributed for sale. Mississippi imposed a tax on transportation companies for the "privilege of doing business" in the state. The tax was applied equally to businesses involved in intra- and interstate commerce.
Did the Mississippi tax violate the Commerce Clause because it placed a burden on an activity associated with interstate commerce?
Legal provision: Article 1, Section 8, Paragraph 3: Interstate Commerce Clause
A unanimous Court found the tax valid. Businesses involved in interstate commerce should assume a just share of the state tax burden. The Court's decision established four criteria to be met for a state tax to be valid and not an unreasonable burden on interstate commerce. The tax must be (1) on an activity connected to the state, (2) fairly apportioned to be based on intrastate commerce, (3) nondiscriminatory, and (4) related to state services provided. These criteria are only valid if Congress has not imposed conflicting regulations.
Argument of Alan W. Perry
Chief Justice Warren E. Burger: We will hear arguments next in 76-29, Complete Auto Transit v. Brady.
Mr. Perry, you may proceed whenever you are ready.
You may lower the mike, if you like a little.
Mr. Perry: Mr. Chief Justice and May it please this Court.
This case is here on appeal from the decision of the Supreme Court of Mississippi, upholding the validity of the state tax laved on interstate commerce and the privilege of engaging in interstate commerce.
I represent Complete Auto, the appellant, which is seeking to recover these taxes from state of Mississippi.
The State of course is a party for this action through Charles office, the Chairman of State Tax Commission.
Complete Auto is a Michigan corporation engaged in transporting new motor vehicles, cars and trucks from the manufacturers and dealers in 48 states, operates pursuant authority granted by the State Commerce Commission does not have any intrastate operating rights from Mississippi Public Service Commission.
It has been engaged in this business in Mississippi since 1940 and engaged in this transporting vehicles from the Jackson, Mississippi railhead round since approximately 1960.
During that period of time, it is has paid substantial income taxes, franchise taxes, ad valorem taxes, license plate fees.
Since the tax commission’s main contention is that this activity of Complete Auto constituted intrastate commerce, a brief reference to the undisputed facts concerning the activities of Complete Auto in Mississippi and that is to say, Complete Auto is engaged only in the business of transporting new motor vehicles for General Motors.
All of the motor vehicles that were transported by Complete Auto manufactured in plants outside the state of Mississippi.
General Motors, pursuant to its obligations to its dealers, was responsible for delivering the motor vehicles to the dealer’s location.
General Motors chose the carriers to make that delivery.
Of course, it is necessary to delivering, a bound carrier of Motorcare carrier since most dealer showrooms not located at Jackson’s railroad tunnel facilities.
In many cases Complete Auto or another motor carrier will transport the vehicles the entire distance from the manufacturing plant to the dealer.
In some case, however, as in the activities with which we particularly concerned, General Motors found it more economical to use a rail carrier for a portion of the journey on the motor carriers such as Complete Auto to complete the delivery to dealer.
General Motors made all the transportation arrangements before the vehicles left the plant, at the time each vehicle left the plant, a label was placed in or on the motor vehicle showing the particular dealer to whom it must be delivered.
The trial court found as a matter of fact that once the vehicles were delivered to the carrier, that General Motors had nothing whatsoever to do with transportation and the vehicles were in the custody, care and control with the carriers from the time they left the manufacturing plant to the time they left the -- until the time they arrived the dealer.
The transportation here at issue, a railroad transported the vehicles from the manufacturing plant to a rail ramp in Jackson, Mississippi.
In Jackson, the railway transferred the vehicles to Complete Auto which completed the transportation to the dealer.
Some of the dealers were located inside of Mississippi, some of the dealers were located outside the state of Mississippi.
At the trial of this case in the appendix are documents illustrative of the transactions we are talking about.
They show that for the documents which are in evidence, the vehicles were shipped from manufacturing plant at Atlanta, Georgia by the Southern Railway System to Meridian, Mississippi which is in the eastern portion of the state.
There they were transferred to the Illinois Central Railroad which carried the vehicles to Jackson, which transferred the vehicles to Complete Auto for continuation to the dealer in the state and out the state.
The statute at issue in this case, provides in part as follows.
There is hereby laved and assessed and shall be collected privilege taxes for the privilege of engaging or continuing in business or doing business and then it describes the tax to be levied pursuant to certain following sections.
The particular section with which we are concerned provides in part that upon every person operating at pipeline, airline, bus, truck or other transportation business, but the transportation of persons or property for compensation between points within the state is hereby levied on sales and shall be collected a tax equal to 5% of gross income of such business.
Acting pursuant to the statutes, the tax commission assessed the tax, against Complete Auto on the gross receipts derived by Complete Auto for transporting the vehicles from Jackson Mississippi to the dealers in Mississippi.
The State Tax commission did not assess any tax on any portion of the gross receipts earned by Complete Auto in transporting the vehicles from Jackson, Mississippi to dealers in other state.
The commission’s position in levying this tax has always been that it considers Complete Auto’s activities in continuing this intrastate transportation from the manufacturer to dealer to the intrastate commerce.
It is our position however that the intrastate character of the transaction is clearly demonstrated by the undisputed facts.
Justice Harry A. Blackmun: Mr. Perry, how long is Mississippi has this statute in its present form?
Mr. Perry: The statute was amended to its present form in about 1955, as I recall Mr. Justice Blackmun.
It had a predecessor’s statute which was in effect at least in 1949 when this court decided Intrastate All Pipeline case, that tax statute was very similar to one now in effect.
Justice Harry A. Blackmun: Do they all speak in terms of privilege?
Mr. Perry: Yes sir, the statute prior in 1955 said privilege once, this statute says privilege twice.
It is undisputed that the intention of General Motors was that the motor vehicles be transported from manufacturing plant to the dealer.
It is undisputed that the only break in the transportation was for the purpose of transferring the vehicles from one carrier to another.
It is undisputed that after that transfer took place, the transportation to the dealer continued and it is undisputed that General Motors had nothing whatsoever to do with the vehicles after they left its plant.
The commission’s position in this seems to be based solely on its contention that it lays the form of the documents, established that this is somehow intrastate commerce and the commission’s brief asserts that this fact is controlling and the form of the documents is the only pertinent fact which this court needs to consider.
It is undisputed that separate bills of lading or way bills were prepared for the trail for the railway journey and for the truck journey.
There were separate bills of lading.
However, it is also undisputed that the reason for that was that the joint tariffs had not been found for the rail carrier, for the truck carrier, since there were no joint tariffs for these two carriers, there could be no joint rights, thus that could be no joint documents.
We have cited numerous cases in our brief holding that the form of the bill of lading or the documents not controlling, does not affect the character of the continuity of intrastate movement.
We have also cited numerous cases showing that a mere interchange from one carrier to another does not affect an intrastate movement.
The lack of merit in the commission’s contention that this court need to look only to the bills of lading, it is clearly evident from the peculiar and inconsistent results which it produces.
Unknown Speaker: Is there an income tax in this?
Mr. Perry: Yes sir and the record, exhibit C5 shows that Complete Auto which is cited in the brief shows that Complete Auto paid that tax, franchise tax, ad valorem taxes and license plate fees of state.
Unknown Speaker: And why are those taxes permissible?
Mr. Perry: They are not privilege taxes as we see it Your Honor.
We do not contend that those are privilege taxes...
Unknown Speaker: If Mississippi just changes label here and said we are now putting a tax on transportation?
Mr. Perry: Well, that is somewhat akin to the Railway Express case where they merely -- in Railway Express Your Honor there is an earlier decision where this court invalidated that Virginia statute.
A few years later after the Virginia legislature had revived the statute the question came up as to whether the amended statute still levied to privilege tax.
The court held in a decision as to which there was some reservations in the sense that, yes, that was indeed a property tax or a tax levied in lieu of a property tax, and therefore, it was not a privilege tax.
Question was not, exactly free from that as I recall Mr. Justice Brennan expressed some reservations and Mr. Justice Stewart dissented, “I am not sure that merely exercising the words privilege from this tax would make it not a privilege tax.
I think that you still have to look and see if the state is contending that it is not levied on the privilege of engaging in business, exactly what answer that is it levied on.”
Unknown Speaker: What is the vice of a privilege tax as opposed to say a gross income tax on income derived from transportation within the state of Mississippi?
Mr. Perry: Well, of course there is the basic argument that the state does not have the power to exclude a company from engaging exclusive intrastate commerce.
That is perhaps a formal argument.
The particular practical problems that such a tax creates, is that a privilege tax is more selective than the other taxes which this court is held, such as an income tax or property tax.
Unknown Speaker: What if this tax has exactly the same incidence, except that it was called a gross income tax on income derived from transporting property within the State of Mississippi?
Mr. Perry: This court has chosen I think to draw a bright line test because of the dangers that a privilege tax is fairly.
Unknown Speaker: Dangers of discrimination?
Mr. Perry: Yes sir, the danger of selective tax.
Unknown Speaker: It is on the privilege of doing interstate commerce that is all it covers, intrastate commerce?
Mr. Perry: No, sir that could be.
Unknown Speaker: Well, it is a tax, if the tax – if that is what the tax law says by definition it would reach on the interstate commerce.
Mr. Perry: I am afraid I do not understand you.
Unknown Speaker: Well, the law stated that we put a tax on the privilege of engaging an intrastate commerce?
Mr. Perry: Yes sir, surely that is prohibitive, but the Spector decision on which I always base because it is a lot further then that.
In that case, it was held that a tax placed on intrastate and intrastate commerce in the form of privilege tax is invalid.
It is not just a tax that is levied on intrastate commerce, it is invalid.
It is one that is levied on interstate and intrastate commerce if that is in fact levied on the privilege in engaging intrastate commerce.
Unknown Speaker: Well, do I understand you then to say that if Mississippi changes its label, but imposed the same tax, it would be alright?
Mr. Perry: No sir, I think that is the Railway Express case again Your Honor.
In that case tax was reconstructed as a property tax, by making it in lieu of the property tax on certain intangible assets of the carrier.
I think that if State of Mississippi worked within that same statute, merely exercising the words privilege, one would have to look at, what in fact was being taxed by the statute, looking at the entire structure of the Mississippi taxing system to see if they have in fact found a valid taxable instant upon which they had levied the tax.
Unknown Speaker: One last question, you said this court has made a bright line, do you really mean that?
Mr. Perry: Yes sir, I think Spector is a pretty bright line.
Unknown Speaker: What about Memphis Gas?
Mr. Perry: Of course that pretty (Inaudible) Spector and Memphis Natural Gas was of course a franchise tax and after Colonial Pipeline, those two cases really are the corporate franchise instant as a separable instant as I read court’s opinion in Colonial Pipeline.
Unknown Speaker: But then you are saying label is important?
Mr. Perry: No sir, I think that the -- well, the label is important in that it helps prove in this case that it is not levied on anything except the privilege.
If the state merely took out the words privilege, I think we would have a harder time, but we could still succeed if we establish that it was not levied on anything but the privilege.
Unknown Speaker: So in your mind then Memphis Gas and Spector are entirely reconcilable?
Mr. Perry: Well, I am not going to represent to the court that I can reconcile every word in both.
Unknown Speaker: But you said it was a bright line.
Mr. Perry: Yes sir, I believe that to the extent that Memphis Gas is inconsistent with Spector, I believe Spector controls and I believe that the cases since Spector, they are certainly consistent with Spector.
I think that there are number of cases in 30s and 40s, where the court was struggling with Justice question whether to adopt a test of balancing the burden on the interstate commerce against the state’s need for revenues and the benefits provided to the state, a case-by-case adjudication of the validity of each tax.
On the other hand there were those in the court who believe that the appropriate test would be a Bright Line Test condemning either privilege taxes or sometimes expressed as a direct tax in that -- do not see that language in the Spector.
I think it is now a privilege tax.
The court wrestled with that problem apparently for a number of years and came down on the Bright Line Test perhaps in the interest of affording certainty to the taxpayer, perhaps recognition that the difficulty of a taxpayer approving that a particular tax burden on interstate commerce is almost insurmountable.
Unknown Speaker: If you would put to prevail, I suppose your legislature could do what the Louisiana Legislature did in the Colonial Pipeline and setup alternative incidents as they did there and then go out and tax it?
Mr. Perry: They could not choose the valid incident which the Louisiana Legislature used and which this court sustained which was…
Unknown Speaker: Well, those were alternatives...
Mr. Perry: Yes Sir.
I do not read Colonial Pipelines justifying all three, but merely the privilege of doing business in corporate form.
The State of Mississippi has a corporate franchise tax which is levied on that and I am not sure that they could tax it again without it really being a privilege tax.
Unknown Speaker: Sometimes the Court has this type of discussion if not inquiry into what it is that the taxpayer is getting for the money he is paying now.
Is it your position that the taxes you are already paying, the various taxes you mentioned balance that all that you are getting and that you get nothing for this tax?
Mr. Perry: It is the difficulty that answering that question presents that I believe justifies the Bright Line Rule, we pay substantial taxes.
I am not sure that anyone can quantify or that a court can quantify the cost of the state of providing the benefits or the value of the benefits which the taxpayer receives and we have not tried to in this case argue that we only receive x amount of benefits but we pay y amount of dollars.
That is a problem that we would have to address if the court would overrule Spector or the Bright Line Test.
Unknown Speaker: But your real problem is that you say Mississippi getting too much tax amount?
Mr. Perry: No, sir I think…
Unknown Speaker: Well, you agree to pay the other taxes?
Mr. Perry: Yes sir, we will agree to pay the other taxes.
Unknown Speaker: Well, that is a real problem?
Mr. Perry: No Sir, I do not think that we have said that we can quantify the amount we were paying and that exceeds the amount of benefits that a state is entitled.
Unknown Speaker: No, I did not say that.
You admit your subject to taxes by the State of Mississippi.
Mr. Perry: Yes Sir.
Unknown Speaker: Your objection is this is too much?
Mr. Perry: No Sir, our objection is that this is a privilege tax.
Unknown Speaker: And that is too much?
Mr. Perry: No Sir, our objection also is that this is not a tax that we would have paid if the state had been entitled to levy it 1968 through 1972.
This tax would have been passed along to General Motors, presumably to its leaders and presumably to new car customer during 1968 to 1972.
We relied on the Bright Line Test, it is too late to pass the tax alone, in essence about relying on Spector, we are now, we have no remedy, we are paying a tax which we would not been required to pay.
Unknown Speaker: Well, Mr. Perry, just to -- you just talked about Spector instead of talking about guideline?
Mr. Perry: I am sorry sir I did not.
Unknown Speaker: What decision is that you say that you relied on the Spector case?
Mr. Perry: Yes sir that case held that a state may not levy a privilege tax on interstate commerce even if the tax is nondiscriminatory and fairly apportioned.
Unknown Speaker: Well, do you think -- go ahead finish it.
Mr. Perry: Of course, that decision was in 1951 I believe.
In 1954, there was the first Railway Express case and since that time the rule has been recognized in other decisions of this court, not the basis of hope.
Unknown Speaker: Well, do you think it is necessarily a basis of a reliance which you are going to assert in a constitutional sense to pick out the case that is the most favorable to you and say we relied on that and in affect ignore the Memphis Gas case?
Mr. Perry: Well, a taxpayer in the situation of Complete Auto cannot afford to say it well, it is maybe yes and maybe no, that you have to make a decision as to whether to pass this tax along or not.
The decisions made to rely on the latest cases all of which are after the earlier cases that might indicate that there is some doubt as to them lifting this tax.
Unknown Speaker: That is what your brief in affect saying.
The legislature was foolish enough to say we are levying this tax expressly upon the privilege of doing an exclusively interstate business and that is all they say, it is unconstitutional under Spector and the line of case, I see under the holding.
Mr. Perry: Yes sir, I think the state would have a difficult time contending that...
Unknown Speaker: No but is it not want your argument is based on what we said last time in Colonial?
Mr. Perry: Yes Sir, I think that there is difference between the label and the instance of the tax.
As we pointed out, I believe the privilege tax in a sense danger is that other taxes that a more aptly worded statute would avoid, if you have a privilege tax it is always...
Unknown Speaker: If Spector, if you are right in relying on Spector, once you establish that that is what this tax is and that is the way that the tax statute is written you are entitle to win?
Mr. Perry: Yes Sir that is our position.
Unknown Speaker: And that is certainly the Bright Line, is it not?
Mr. Perry: Yes sir.
Unknown Speaker: I think that you read the Mississippi Supreme Court as saying that has been ceding or accepting that this transportation was the last leg of an interstate journey?
Mr. Perry: We read the Supreme Court has conceding that this was interstate commerce.
The tax commission even.
Unknown Speaker: I am saying that it does not say that this last leg was not part of interstate commerce?
Mr. Perry: No sir, even the tax commission brief concedes that the Supreme Court found it unnecessary to decide the issue.
They certainly made no holding that it was intrastate commerce and the Chancery Court’s opinion is even clear Your Honor, I think it is patched although he does not say this is interstate commerce if that is the substance of his opinion.
Well, the form of the documents is really the only question Mr. Justice White on whether this is interstate or intrastate.
They argue that the because the goods were consigned to General Motors in care of Complete Auto that that makes this somehow intrastate commerce and indeed they even suggest that General Motors took possession of the...
Unknown Speaker: Well, that is what the Mississippi courts held?
Mr. Perry: No sir, I was going to point out that we were not convinced and neither of the Mississippi courts were convinced and we think this court should agree with Mississippi courts and conclude that this is interstate commerce and only question is whether a privilege tax can be levied?
There is no question that this is a privilege tax.
It is been consistently construed as a privilege tax by Mississippi Supreme Court.
There is no question that the tax is a condition per se between engage in compliance of the statute.
It is a condition per se to engaging in business and interstate commerce in Mississippi although we do not think it would be controlling whether it were a not, the tax commission’s brief made the argument.
That it is not a condition per se and of course, our brief cites the statute which we believe establishes that it definitely is in interstate commerce.
Excuse me, that it definitely is a condition per se to engaging business.
Our original brief discussed at length the recognition which we think that Congress has authority to Spector, it has reviewed this entire area of state tax, the interstate commerce.
We believe that here we have the positive inaction that this court recognized in Flood v. Kuhn.
If this case, Mr. Justice Blackmun this is, Spector is an operation referring to your thinking in Colonial Pipelines.
We think that it is an operation that has been so long recognized by Congress and so much relied on by the taxpayers that this court should leave it to Congress to correct any of the problems that might be apparent or not apparent in the rule.
By that we do not mean to conceive.
Unknown Speaker: You mean relied upon then in the sense you just ignore the state tax?
Mr. Perry: We did not ignore the state tax.
Unknown Speaker: I think that you would not pay.
Mr. Perry: Well, yes sir I suppose, we would have to ignore the constitution of the state tax and we choose to rely on the constitution.
Unknown Speaker: I mean at least you relied on it in the sense you did not pass it on?
Mr. Perry: Yes sir and of course, if you are going to tack a culs like that own you got to take it on so that the dealer can pass it along to his customers or else someone is going to be left of solving burden of it that otherwise should not.
If you had just one customer and he was going to solve one way or the other it might cause such a difficult problem.
For the reason stated that that this transportation is an interstate commerce then the State might not levy a privilege tax on the interstate commerce, we suggest that the decision of the Supreme Springs Court of Mississippi is totally inconsistent with the opinions of this Court it did not cite.
It did not cite Railways Express it did not cite Colonial Pipeline and either we were not eloquent in arguing those cases and we discussed in the length as the court deliberately to choose to ignore that prospect for the reasons stated we think the decision should be reversed.
Chief Justice Warren E. Burger: Very well.
Argument of James H. Haddock
Mr. Haddock: Mr. Chief Justice and May it please the Court.
I think the facts are most important in this case precisely as to how this activity took place on the first day at --
This Mississippi sales tax is required by the Statute to be passed on to the consumer at the time of the sale by adding the appropriate amount of tax to the bill and if this court follows the majority opinion in the Joseph McGoldrick v. Berwin-White Company in which say in the majority opinion they stated that in a tax of this nature and the tax in New York, the New York tax in that case was exactly like to tax in Mississippi and the court in the majority opinion found that the incidence of the tax was on the consumer.
This is a consumer tax is to be, the sales tax of Mississippi incidentally was first State sale tax that we passed in 1932.
It is a consumer tax.
It says that it is privilege tax and we do not deny that it is a privilege tax but it is a tax placed on the privilege of conducting certain intrastate events which are listed on the sale of property or the sales of services which are performed exclusively within the State of Mississippi.
In the case of the (Inaudible) the travel from one point within the Mississippi to another point within Mississippi.
In this particular case, we might look at the actual transaction as the exhibits indicate and determine our position as to why we think this is clearly intrastate commerce that has been taxed or an intrastate activity at the conclusion or determination of the shipment from consignor in one State to the consignee in another State.
It is just the same situation that you would have that somebody would send freight in by rail, land into merchant and he had somebody to go down to the rail road and pick it up and bring it to his business.
It is an exclusively intrastate activity that the dealers of General Motors want to be sure that the property was sent from the rail head to the dealer’s front door and the dealer would not be required to go pick it up himself, that this service was performed.
Unknown Speaker: Mr. Haddock on the facts of this case, these vehicles go to Meridian and they change from one railroad to another, then why do you not tax the Meridian to Jackson?
Mr. Haddock: There was no sale of the service on that charge that was on true bill of lading from the assembly plant.
Unknown Speaker: Then you rely on bill of lading?
Mr. Haddock: Well, to a degree yes sir, we rely on the bill of lading because in the day as complexes in modern business you got to rely some commercial transaction in tax matters.
Unknown Speaker: My other question is that if one of these trucks, they have three vehicles to be delivered in Mississippi and two to go to Louisiana all on the same truck.
Mr. Haddock: We do not tax those going from a Mississippi to -- from the consignor.
Unknown Speaker: What right do you have to tax those if you do not tax the others; they are all on the same truck.
Mr. Haddock: They all use.
Unknown Speaker: And they all are using the Mississippi roads.
Mr. Haddock: They all use, they are using the Mississippi but we do not feel that a shipment from a point in Mississippi to a point in another State is exclusively intrastate commerce.
Unknown Speaker: The same vehicle could be used in that regard?
Mr. Haddock: Yes it is the same vehicle could be used.
In this particular case, General Motors ship their automobiles from General Motors assembly plant in Georgia to General Motors assembly division in Jackson, Mississippi as a consignee by rail on rail availability.
They will then unloaded it on to a large lot and the Mississippi Supreme Court said that up until that particular point General Motors had control of this property.
They could do with it as they saw fit.
They could sell it somebody else.
They could transfer it to another dealer.
The consignment was shipped to themselves as consignee.
As a matter of fact in the Convoy v. Washington, which was decided after Spector that was an identical case in its own fact and law and facts involved the only difference was that Ford Motor Company was the manufacturer of automobiles and Convoy was a shipper of the cars.
There was no difference.
All of the other facts of an importance were exactly the same.
The same procedure was used and in that case the Ford officials said that they used this method of shipment, in order to protect themselves in case their dealership go bankrupt after the cars were shipped, prior to the shipment in Mississippi or in the case if they wanted to demand a cash payment for the cars when they shipped them out of Jackson by the carrier.
They maintained control and the Mississippi Supreme Court said that they maintained control up to that point because they have shipped the cars to themselves out of state to themselves in the state.
Unknown Speaker: What if each of the dealer sends some kind of a vehicle to this point in Mississippi and taking the cars to their own distribution point themselves, would you levy any extra tax on them?
Mr. Haddock: Levy the same tax on them yes Your Honor.
If it is a dealer from Mississippi, yes we will levy the same tax.
Unknown Speaker: Do any of them do that, do you know?
Mr. Haddock: Well, I guess I can tell from the experience.
I used to own a dealership not exactly to this extent but my property was sent through the railroad and I unloaded it and brought it, had it brought to my plant and if I had engaged somebody to do and it was used regularly I paid them the sales tax on this transportation.
There is a fine line of demarcation and everybody realizes it is just were interstate commerce breaks.
There is no way that anybody can actually tell and you have to use some kind of different solution in every case as dependent on the facts and the situations existing there, which fairly indicate the purposes and intent from the paperwork that is involved.
Our position has always been and we think that the Mississippi Supreme Court said that this was intrastate commerce, that this was a local activity.
It may have been related to or connected with it in some way, but it was not intrastate commerce.
The reason they could not have found that it was intrastate commerce is that they based their opinion in this case and they say that three cases control this case.
Unknown Speaker: Now that is, what you are saying now is contrary what you said in your brief and I will read it.
It is apparently clear that the Mississippi Court found it unnecessary to determine the question of interstate or intrastate commerce.
Mr. Haddock: Well I think it is.
Unknown Speaker: Now you just told us you think that they held that it was intrastate.
Mr. Haddock: Well may I rephrase this.
I think first they decided that this was a local intrastate activity that was taxed.
This is evident on page 108 of the appendix here, in which they are talking about the -- the local activity taxed must be warned that it does not lend itself to repeated exactions in other states.
The general rule is that a state may tax a local activity, affecting or related to interstate commerce, if the local activity is sufficiently separate from the out of state aspects of interstate commerce.
I think that no other leading of this opinion by the court first established that this was a sufficiently separated activity from the aspects of interstate commerce conducted exclusively within the state of Mississippi.
Unknown Speaker: But Mr. Haddock at the next page they say, rely on a, as they are using their own language, the case involving the final leg of an interstate shipment is -- be done which sounded to me as though this they are taxing it, what they are talking about.
Mr. Haddock: I will agree that does sound lacking on the face of it, but then if you consider the three cases in which they have based their decision and they say the present case is controlled by cases arising in this state.
In Interstate All Pipeline Company v. Stone involved the first leg of an interstate commerce, but the Mississippi Supreme Court themselves had held that the fact under those facts, that that was intrastate commerce in that case.
The same thing is in Dunn Brothers which involves…
Unknown Speaker: But they held that before the United State Supreme Court called the first leg interstate shipment, is it not?
Mr. Haddock: Sorry.
Unknown Speaker: Did not the United State Supreme Court called the first leg of an interstate shipment and for the purpose of deciding what is interstate, what is intrastate be governed by the state court’s decision or…
Mr. Haddock: Yes, but I think they are using a leg of an interstate shipment as the courts in these other cases used the leg, as being a movement from a local, within the state, the first leg being an intrastate activity prior to the time that it is actually shipped in interstate commerce.
Unknown Speaker: What about the facts of Spector, were they pickups from points of origin and then delivery to terminals within Connecticut and then ship them out of state?
Mr. Haddock: I am not sure about that but in that case that involved through shipments from consignor out of state to a consignee in the state.
There was no local activity whatsoever, no local commercial transactions within the state of Connecticut and I think Spector is one of our strongest supporters actually in what the court said.
The court looked for the local activity, the presence of that activity in which base their decision, but they could not find it.
There was no local activity in Spector.
They had no commercial transactions involved except from the movement of commerce from one point in Connecticut to the point outside the state of Connecticut.
Unknown Speaker: What is the commercial activity here?
Mr. Haddock: The commercial activity is the transportation of automobiles from the railhead after they had arrived in Mississippi in the hands of the owner, consignor and he ships them out within the state Mississippi.
He is the shipper in sale, General Motors ships the automobiles.
Unknown Speaker: Was there a General Motor agent in Jackson, Mississippi can handle it?
Mr. Haddock: Yes sir, General Motors had a big operation in Mississippi.
Unknown Speaker: Is there anything in the record to show that anybody did anything or was it just a routine thing.
What could have happened if in a railroad from Jackson to wherever this went?
It would be no problem, would it?
Mr. Haddock: There would be no problem except that the dealer would have to get the cars off of the place to bring up to his place a bit.
Unknown Speaker: One of these cars, one of these vehicles was delivered to Biloxi, Mississippi by this truck.
If a railroad had picked this up at Jackson and delivered in Biloxi, no tax?
Mr. Haddock: No sir that part of the shipment it would not, that is correct, it would not to get to Biloxi, but now if somebody...
Unknown Speaker: That there would not be any tax between Jackson and Biloxi?
Mr. Haddock: No sir, --- Because there is a shipment, an intrastate shipment of the owner of the property who has possession and control of the property in Mississippi to a consignee also located in Mississippi.
This is a situation that exists in -- if a manufacturer or a big organization had a warehouse in some state and they manufactured goods.
The total purpose being to sell those goods and they ship them from out of state to that warehouse, the intention is that they go on to other places, when they are shipped in there.
Unknown Speaker: My final question, if they find it cheaper to get Complete Auto to ship them from Meridian to Jackson, what then?
Mr. Haddock: Well, if they sell them to Complete Auto or to the dealer or to somebody else.
Unknown Speaker: The same deal was made?
Mr. Haddock: If they had the same deal and shipped them from Meridian and they hold Complete Auto to take them from Meridian to the dealer, it would be the same proposition.
Unknown Speaker: There would be taxed?
Mr. Haddock: There would be taxed.
Unknown Speaker: And they would be doing the exact same thing that railroad is doing now without tax?
Mr. Haddock: No sir.
Unknown Speaker: Yeah, they deliver it from point to point.
Mr. Haddock: That would be a different situation.
Unknown Speaker: One is a truck and one is a railroad.
Mr. Haddock: Maybe I have misunderstood your question.
Unknown Speaker: If for the first time the cars are shipped in Meridian and delivered to another area and they deliver it by railroad to Jackson and they are not subject to this tax.
Suppose they find that it would be cheaper to transfer these in Meridian to a truck of the Complete Auto Transit Company and shipped to Meridian, they would be taxed?
Mr. Haddock: They would not be taxed, no sir because they would be shipping them from themselves on a continuation, the property would not change hands.
They would be still continuing to ship them from themselves to themselves.
They will be a movement from out of state to movement in the state.
Unknown Speaker: Well, this a Meridian, Mississippi to Jackson, Mississippi?
Mr. Haddock: That will be alright as long as that is a continuous movement from the first…
Unknown Speaker: What is the difference between pick them up in Meridian and pick them in Jackson?
Mr. Haddock: There is no difference in the location.
There is a difference in the commercial transaction itself.
Unknown Speaker: You said you could not tax the first one but you could tax the second one.
Mr. Haddock: Yes it is, but you have to go back and look at the shipper.
You have to go back and look at the shipper and the person who is receiving the goods and the transaction that takes place.
If it is a commercial like transaction, shipping property from one person in Mississippi as consignor to another person in Mississippi as consignee that transaction is taxable.
But if it is a movement of a property belonging to a person from an out of state location who is shipping goods to Jackson, Mississippi and he ships it to Meridian to himself from himself out of state to himself in Jackson and it comes through by rail and then by truck and is still his property, there is no title change, there is no possession change, there has been no other activity, that would not be a taxable activity in which you could tax.
Unknown Speaker: Do I understand Mr. Haddock that in your answers to the questions of my brother Marshall that you can see that this is that if, what is involved in this case is interstate commerce then your state has no power to tax it?
Mr. Haddock: I would say if it is interstate commerce...
Unknown Speaker: Then your state has no power to tax, that is what you have just told Justice Marshall I think.
Mr. Haddock: No, sir I do not think so...
Unknown Speaker: What have you told him?
Mr. Haddock: It may have been, I think that we possibly could have taxed it anyway, but we do not make a practice of taxing interstate shipments from a consignor out of the state...
Unknown Speaker: Why do not you make that practice of doing it under the law?
Mr. Haddock: Well because…
Unknown Speaker: The law requires you to tax it unless it is unconstitutional to do so, do they not?
Mr. Haddock: Well, there is such a fine line in interstate commerce that we have always considered, it has been a basic principle of ours that under our law we could not tax transportation that was coming from a point outside of the state to a point inside of the state.
Unknown Speaker: Because it is interstate commerce.
Mr. Haddock: Generally, yes sir, I would say.
Unknown Speaker: So if this is interstate commerce you could not tax this, you concede that?
Mr. Haddock: I will concede it unless this is a local activity that is so related to it that is apart from the interstate commerce and would not be a burden on it, would not be discriminatory.
Unknown Speaker: Well, Justice Marshall’s had hypothetical case that he asked you about, was a purely local activity in continuation of interstate commerce.
It goes by rail to Meridian and by truck from Meridian to Jackson and you may call that a segment from Meridian to Jackson Mississippi by truck?
Mr. Haddock: Well, it would depend, it depends on the business transactions that the local activity that was bought and that would depend on the transactions I think, well, in the proposition that I do not know.
Unknown Speaker: You would not tax it, you would not tax that transaction embodied in Mr. Justice Marshall’s question.
That is what you told him, did you not?
Mr. Haddock: That in principle possibly so, but it is very difficult to answer that question because you do not know how they can handle that transaction in Meridian, you do not know whether they have control or what the shipping document say?
Who the property belongs to at that particular time?
It would be very difficult to say looking at the documents.
Unknown Speaker: Well, I understood your answers to Justice Marshall’s questions.
It boiled down to conceding that if this is interstate commerce involved in this case.
You do not have power to tax it under your statute and you tell me if…
Mr. Haddock: That general statement I do not agree with, no sir.
Unknown Speaker: Well, then why would not you tax the truck trip from Meridian to Jackson in his question?
You have an absolute duty to apply this tax uniformly and fairly accept when you cannot constitutionally do so, do you not?
Mr. Haddock: Yes sir, I would think so.
Unknown Speaker: Then why would you not tax that?
Mr. Haddock: You have to look at the facts.
Unknown Speaker: Well, you told him you would not tax it.
Mr. Haddock: Well, we may not, we probably would not tax it because we do not know about all the transactions and we cannot tell them facts in every case of shipment and every situation that comes up.
We have adopted the principle in the Tax Commission, that we will not tax any part of transportation from a consignor out of the state to a consignor in the state.
Unknown Speaker: Well, may I ask you again why have you adopted that policy?
Mr. Haddock: Well, because it is uncertain.
It has been so uncertain to suggest what part of the transportation cost that you could tax.
It has not been firmly established in my mind as to just what code of demarcation as to property tax, as to state tax or income tax.
The court has been vaguely able to go along with it, but in the field of transportation, I guess, to be as the court says they found a problem, you cannot really decide where the line of demarcation is, but the court has...
Unknown Speaker: Between what and what, between local commerce and interstate commerce?
Mr. Haddock: Yes sir.
Unknown Speaker: And if it is interstate commerce you cannot tax it, is that right?
Mr. Haddock: Well, basically you could not tax it if the incidence of this tax was on the privilege of doing an interstate business.
I think this court has established that.
If it is for some other purpose, I think you can.
Unknown Speaker: This has nothing to do with the purpose for which the revenues are used, does it, that is not any criteria, is it?
Whether they are used for pre-school license or for building roads.
Well that makes no difference.
Mr. Haddock: You are asking me a philosophical question.
Unknown Speaker: Well, does it make any difference constitutionally, that is the question I am asking you?
Mr. Haddock: Constitutionally Act in my opinion, I have to start with a basic premise that interstate commerce should be its own way.
It should be treated exactly like any other commerce as long as that is not a barrier to prevent the free flow of trade.
Now, actually as far as my philosophy is concerned, I think that interstate commerce should pay its way and there is only two philosophies; one that it pays its own way or one that you cannot put in a tax on and you cannot burden it, you cannot do anything with it.
But the court has a very difficult problem.
They have look at each case individually to arrive at a satisfactory method of having the case, in which they do not have too much guidance from Congress, they just have one simple state.
Unknown Speaker: Was your theory, over the road trucker that just is holding cargo from one end of your state to the other, is going through your state, would be subject to this tax?
Mr. Haddock: No sir, he would not.
Unknown Speaker: Well, I know, but under your theory, in your private theory the state would have the power.
Mr. Haddock: I would say that he should pay his fair share of what that is and how actually…
Unknown Speaker: I understand, but you would say that you should be able to under this very tax to say that that trucker who does not do anything in Mississippi except driving through it to pay a privilege for doing business in Mississippi.
Mr. Haddock: No sir, I did not say that.
Unknown Speaker: Well, I know you do not do it on the airline, under your private.
Mr. Haddock: I do not think that you should do it on the privilege of doing business under any circumstances.
Really if that is where the tax is, to pay a license pay a $1,000 for the privilege of going through this state, I would certainly not buy that.
Unknown Speaker: Well, how about for the privilege of originating shipments out of this state and shipping them direct to an automobile dealer in the state?
Mr. Haddock: The shipment is out of state to an in state, we charge no tax.
Unknown Speaker: I know you do not, but how about -- is that constitutional for you to do it?
Mr. Haddock: Yes I think so, but...
Unknown Speaker: Or further even though, you call it the privilege?
Mr. Haddock: Yes sir, I think that the privilege tax in this case, if you go by where the incidence of this tax, I do not agree with that.
This is not the basic philosophy or the constitutional question, I assure you that because I have recognized the fact that you go back to the old feudal system and danger of the landlords putting taxes on properties for the privileges of passing through that.
I would be the first one to protect that constitutional right.
Unknown Speaker: Unintentionally I am sure, you have confused me, Mr. Haddock.
Let me give you, this concrete hypothetical case.
Suppose this appellant sent its whatever kind of vehicles they have up to Detroit, picked up a load of cars, had a whole convoy of them and dropped them off at various dealers in Mississippi, would you tax that?
Mr. Haddock: No sir.
Unknown Speaker: No, but you do not?
Mr. Haddock: Because they are not and we could not tax it under the sales tax law because there is no exclusively intrastate sale from it, from two points within the State of Mississippi.
This transaction has to be completely within and not from without to within.
Unknown Speaker: And if that truck buys gas in Mississippi, the state can certainly charge a tax on the gas purchase, can they?
Mr. Haddock: They certainly can.
Unknown Speaker: Why cannot it charge it on the portion of the revenues derived from the portion of the journey that takes place inside Mississippi?
Mr. Haddock: I think my personal opinion is that they certainly could, but under the opinions of Supreme Court, we have been fearful of attempting to tax that portion, especially in view of the language and the dissenting opinions in the cases and the philosophies that we are involved in.
It is a very close question that we have problems and we have tried our best not to get over into the question of taxation of a shipment from without the state to within the state from a consignor out of the state to a consignee within the state.
Unknown Speaker: The case that troubles you the most is the Spector case?
Mr. Haddock: I am sorry.
Unknown Speaker: Is the case that troubles you the most is the Spector case?
Mr. Haddock: No sir I think Spector is right in line with what we saying.
Unknown Speaker: This is what you are doing, you are not asking us to overrule Spector, I guess?
Mr. Haddock: I think Spector personally should be, well I will say this that it is a very clear -- I do not like to the aspect because I think they were doing business in the state that would give the state of Connecticut, an opportunity to pose this tax.
They were operating a big business here with a 126 employees.
They were operating trucks running around town.
As far as I am concerned, they were doing business in the state, but they were not, this was a convenience that they were doing.
Picking up goods and taking them up to the ownership.
They were not doing a commercial transaction -- conducting a commercial business transaction.
Unknown Speaker: So you do think, Spector ought to be overruled?
Mr. Haddock: Yes sir, I sure do.
Unknown Speaker: You think it is very helpful to you in this case Mr. Thomas.
Mr. Haddock: I say this that it does not clear our position.
It goes along actually...
Unknown Speaker: I think a little earlier you said found your greater support to that case.
Mr. Haddock: Our greater support comes from Interstate All Pipeline which involves firstly from Stone v. Dunn Brothers which is an exactly the same case where a man shipped goods from California, shipped his own goods from California to himself in Mississippi, building a pipeline across the state.
There is no difference in that case exactly which came to this court, which you took for lack of federal -- you refused for lack of federal question after Spector came along and after Convoy and the State of Washington came along.
Unknown Speaker: Let me reverse my hypothetical to you and suppose that let me say that the cars came by truck from Detroit to Meridian or Jackson and then because of bad roads or other reasons, they shipped it, they took them off the trucks and put them on a railroad and took them the rest of the way, would you tax the rail journey?
Mr. Haddock: Yes sir, I think so.
If those cars were shipped from General Motors, the assembly plant to General Motors and it sells in Meridian, Mississippi and then they had an another transaction and shipped those cars from General Motors in Meridian Mississippi.
If they had to some other point, that shipment intrastate shipment, it would be an intrastate commercial activity and one in which only Mississippi could tax, no other state could duplicate it.
The whole activity is directly related, anybody else would be obliged to pay the tax for the same proposition.
It does not discriminate against anybody.
Unknown Speaker: What this comes down to really then is if Detroit has the good judgment to make out a Bill Of Lading to the consignee as a dealer then they are going to be free of the tax, they can get around the tax very easily?
Mr. Haddock: Yes sir, I admit they can get around it very easily under the rule that I think to the court.
Unknown Speaker: It is not your statute and that is because the wording perhaps of your statute which purports to tax only transportation between points within the state, perhaps it does not purport to tax to the limit of Mississippi’s constitutional authority.
Mr. Haddock: It does not.
We are limited by the state.
Unknown Speaker: Any shipment from outside the state as soon as it crosses the border of Mississippi has to come a point in Mississippi.
Mr. Haddock: Yes but it would not be taxable under our Sales Tax Law.
Unknown Speaker: But maybe but from that point on to the destination, it is a transportation between two points in Mississippi?
Mr. Haddock: It is, but there is no commercial transaction, we have no provision for enforcement.
Unknown Speaker: That is what the law says.
You said it has be a commercial transaction.
Mr. Haddock: Yes on which to base this tax and in such a case there is no provision within our law for posing in a tax between our state and another state.
Unknown Speaker: Between points within the state has been given on particularized within the statute.
Mr. Haddock: There has to be a transaction either and at least the delivery of one end or...
Unknown Speaker: It has got to be from, in order to consignee or from is that to be a shipment and deliver.
Mr. Haddock: By the transshipment by the same, say delivery from one railroad to another.
Unknown Speaker: No sir, if you have a same way, between two points.
Mr. Haddock: I see, I see.
Unknown Speaker: Mr. Haddock, it is not easy.
In my view or either you or your opposition to take a positive stand in the light of the decisions of this court and if you are confused, I am ready to say that I am too.
Chief Justice Warren E. Burger: Do you have anything further Mr. Perry?
Rebuttal of Alan W. Perry
Mr. Perry: Just a moment Your Honor.
I think it is a fact that this whole case turns on the form of the documents, if you have two bills of lading, you are taxable, you have one bill of lading you are not.
Unknown Speaker: You are not, conceding that?
Mr. Perry: That is his opinion.
No sir, we do not concede that at all.
I hope that it is fact that we think that has absolutely no merit at all, but that is the only factor that the commission has looked at and surely no the one that the commission has advanced to this court.
Justice Thurgood Marshall: Well, at least you have Curb Stone opinion as to how you can avoid the tax, do you not?
Mr. Perry: Yes sir, but the tax is even been repelled now since 1972.
We are talking about money, we are out of pocket from 1968 to 1972.
Mr. Justice Marshall asked whether General Motors had anyone present at the point where the vehicles were transferred from the railroad to motor carrier they did not.
The testimony is clear that they did and the Chancellor, specifically found on page, in his opinion on page 100 of the Appendix, that General Motors had absolutely nothing further do for it to do with the vehicles after they were transported.
Nevertheless Mr. Haddock said in his brief and, said again here today that somehow or another the transportation ended in Jackson because the consignee was General Motors in care of Complete Auto.
We think in light of undisputed fact that contention has no merit.
Finally, with regard to Mr. Haddock’s argument about local activity which he defines as the transportation itself, it seems to me and he calls that a commercial activity, it seems to me that is just another way of saying this was intrastate commerce.
What he tried to carve out is no more than a portion of intrastate journey.
He is conceded this tax is not levied on any such local instances to use of property or purchase of fuel, ownership of property or incidence on which the tax could be validly levied.
That is we submit, it is clear this tax is not levied in any local instance.
There are number of instances in the State of Mississippi could and does tax.
This tax just is not one of those taxes.
Chief Justice Warren E. Burger: Thank you gentleman.
The case is submitted.