U.S. STEEL CORP. v. MULTISTATE TAX COMM.
In 1972, twenty one states were members of the Multistate Tax Compact, a body formed by states to assist them in formulating and administering tax law relating to multistate businesses. The Compact had not received congressional approval.
Did the formation of this group violate the the Compact Clause of Article I?
Legal provision: Article 1, Section 10, Paragraph 3: Compact Clause
The Court found no constitutional violation. The Compact did not enhance state political power at the expense of the United States; it not confer to states powers which they did not already possess; it did not involve any delegation of state power to the Commission. Furthermore, argued Justice Powell, each state was free to withdraw from the group at any time.
Argument of Erwin N. Griswold
Chief Justice Warren E. Burger: We will hear arguments next in 76-635, United States Steel Corporation against Multistate Tax Commission.
Mr. Griswold, you may proceed whenever you are ready.
Mr. Griswold: Mr. Chief Justice and may it please the court.
This case is here on appeal from a Three-Judge District Court in the Southern District of New York.
The question involved is the constitutional validity, particularly under Article 1 Section 10 but also under the Commerce Clause and the Due Process Clauses of the constitution of the Multistate Tax Compact and of the appellee, the Multistate Tax Commission, which administers the compact.
The text of the Multistate Tax Compact is set forth at pages 54 through 79 of the white bound Appendix to the jurisdictional statement.
I may say that the record in this case is really contained in two documents, the papers which we filed in connection with the jurisdictional statement and that includes the text of the Multistate Tax Compact at pages 54-79 and then the brown-covered Appendix in which we did not undertake to reprint those things which had already been put before the court.
At the time this suit was brought, 21 states were members of the compact.
Since that time, four states: Illinois, Florida, Wyoming, and Indiana have withdrawn from the compact while two states: California and South Dakota have joined in.
Thus, there are now 19 states, members of the compact.
The basic question arises under Article 1 Section 10 of the constitution and the language which I am sure would have seemed clear to Mr. Justice Black that no state shall without the consent of Congress enter into any agreement or compact with another state.
The simple fact is that Congress has never given its consent to the Multistate Tax compact though that compact went into effect by its terms when seven states had joined it on August 4th, 1967 now more than 10 years ago.
As indicated by the references on page 10 of our main brief, the blue-covered brief, the consent of Congress has been sought repeatedly but has never been granted.
Justice John Paul Stevens: Has it ever gotten out of a committee?
Mr. Griswold: I do not believe it has ever gotten out of any committee nor been passed by either house.
Justice John Paul Stevens: But it has never been voted down?
Mr. Griswold: It has never been voted down.
The consent has never been granted.
Justice William H. Rehnquist: Has this court ever had occasion to address the question of whether an agreement from which a state could withdraw at any time was a compact within the meaning of the clause you are relying on?
Mr. Griswold: No, I am not sure that this court has ever dealt with that question.
I can only say that Congress has dealt with it in 100-150 incidences and has ratified compact from which a state could withdraw.
Certainly, the practical construction is that that is the practical construction by the legislative branches, that that is a compact within the meaning of the Article 1 Section 10.
The Three-Judge District Court held that the consent of Congress was not prerequisite to the validity of this compact.
It also found no merit in the Commerce Clause and Due Process Clause arguments.
Accordingly, it granted a motion for a summary judgment in favor of the appellee.
An appeal was taken and this court noted probable jurisdiction on February 22.
Beyond the apparent clarity of the constitutional language, we rely on the substance of the constitutional provision.
This substance is, I think, given meaning by the long continued practice of Congress and the states in giving effect to the constitutional provision.
In order to put that practice before the court, we have included two rather lengthy appendixes in our main brief.
This is the somewhat dark blue brief.
These appear at pages 53 through 120 of the blue-covered brief.
The first of these, beginning on page 53, lists in chronological order every Compact to which Congress has given its consent from the beginning through the year 1976.
These are listed by title and with our statutory citations, there are something like 150 of them.
I may say that on page 53, there are a number of typographical corrections, I would call the court’s attention to.
In the first place, the first compact listed: Virginia and Kentucky Compact and the second and third from the last one listed: Virginia and West Virginia Debt Agreement, Virginia and West Virginia Boundary Agreements of 1866.
I do not think they are compacts at all and I think we should not have listed them.
The first one is the Act admitting Kentucky to the union and the second and third from the bottom are two Acts connected with the admission of West Virginia to the union.
In the second supplement, we have reprinted a list compiled by the Council of State Governments in a publication which it put out in 1966.
This lists the compacts up to that time in alphabetical order.
To some extent, it duplicates the list which we have in the first supplement.
But, the second list also gives additional information, particularly a list of references to the states which are parties to the several compacts.
As I have said, it only goes through 1866 since we were reprinting it from another publication we did not feel free to make insertions of the additional ones.
But, the compacts to which Congress has given its consent since 1966 are set out in chronological order on pages 68 through 70 of the first supplement.
Finally, we have included on page 121, a list derived from the Council of State Government’s publication showing the compacts which were an operation in 1966 which had not received the consent of Congress.
Unknown Speaker: Where is page 121?
Chief Justice Warren E. Burger: In the last page of the blue brief.
Mr. Griswold: After the blue slip.
Unknown Speaker: Yes, thank you.
Mr. Griswold: Some of these compacts may be invalid for the lack of that consent.
I would mention particularly the Southern Regional Education Compact which was in its origin and effort to getting around this court’s decision in the Games case involving the education of a Negro outside of Missouri, when Missouri maintained a law school for White students exclusively.
The House passed a joint resolution of consent.
The Senate debated it extensively over a period of several days and, eventually, voted to recommit the Bill by a vote of 38:37.
After a suggestion had been made that adaption of the consent resolution would amount to an approval by Congress of the segregation which was implicit in the compact.
In that connection, I would call attention to the fact that the Western Regional Education Compact was consented to by Congress in 1953 only five years later.
No question of segregation was involved there.From this listing, it appears that Congress has given its consent to a wide range of compacts between the several states and that it has given its consent to a very high proportion of the compacts, more than 90%, which have been put into operation.
Many of the compacts which Congress has consented --
Justice Potter Stewart: If I may interrupt you, Mr. Griswold, excuse me.
You just mentioned that Southern Regional Education Compact and you told us that it may be that several, if not all, of the compacts that have not received Congressional approval that are listed on page 121 Supplement C of this brief may be invalid.
Then, I looked at page 111 which is I guess Appendix B of this brief, supplement B to this brief.
Mr. Griswold: Page which?
Justice Potter Stewart: Page 111.
Mr. Griswold: Yes?
Justice Potter Stewart: 111, just to cross-refer to the Southern Regional Education Compact and I noticed that, as stated there, Congressional consent Not required.
Whose judgment is that?
Mr. Griswold: That is the opinion of the Council of State Governments.
It represents the same point of view which is represented by the appellees in this case.
Justice Potter Stewart: That is not your submission.
Mr. Griswold: That is not my opinion.
We have reprinted here this list from the publication on Interstate Compacts put out by the Council of State Governments in 1966 simply because we thought it would be convenient for the court and certainly without endorsing those statements.
Justice Potter Stewart: That was my question.
It says “Congressional consent not required,” but you are not submitting that here.
Mr. Griswold: That is simply reprinting the listing made by Council of State Governments.
Justice William H. Rehnquist: Mr. Griswold, does that not suggest though that perhaps compacts may be submitted for ratification where, in the opinion of the submitting state, ratification may not be required but they just do it in an excess of caution?
Mr. Griswold: Yes, it does and it also suggests, I think, that the time has come when this court should clarify when it is necessary to submit compacts.
Unknown Speaker: Mr. Griswold, in that same vein, were all of these compacts listed in Supplement C at 121 actually submitted to the Congress?
Mr. Griswold: That, I do not know, Mr. Justice.
I do know that the Southern Regional Education Compact was submitted to the Congress.
I do not know whether any of the others were and, in fact, I am sure that the Inter-Pleader Compact was not, because I remember working with Professor Chaffee and the development of that compact.
That is an agreement for opening up jurisdiction of courts.
Conceivably, it should have been submitted.
Unknown Speaker: Do any of the many uniform laws fall within compact?
Mr. Griswold: There is no question that uniform laws are not compacts.
They can be enacted and repealed at will.
It becomes a little more difficult when you get reciprocal legislation.
This statute shall go into effect with respect to any state which passes a similar statute.
But, I do not have any real trouble with that.
Chief Justice Warren E. Burger: But even that is revocable, is it not?
Each of the states under reciprocity is still free to withdraw.
Mr. Griswold: Each state is free to withdraw though perhaps with the conditions of notice or things of that kind and being bound as to actions taken while it was in effect.
Unknown Speaker: I expect what I am really getting at.
Do you suppose that in these several lists, we have an exhaustive list of everything that would fall within the definition?
Mr. Griswold: No, Mr. Justice, I think making an exhaustive list is extraordinarily difficult.
Unknown Speaker: There must be many other types of agreement
Mr. Griswold: These are simply the compacts which were listed in that publication of the Council of State Governments.
This court has dealt, to some extent, with uniform laws it has made passing references that they do not come within the Compact Clause and, in one or two cases, with reciprocal legislation particularly with respect to taxes on interstate carriers.
But, this court has never upheld a multistate compact involving an administrative agency with delegated powers from the states which has not received the consent of Congress.
Let me get back to what moves the court below.
Incidentally, I may say that many of the compacts which have been consented to by Congress involved relatively smaller matters and 18 of the first 28 involved two interstate boundary agreements.
I would call attention to the Ohio-Pennsylvania Amendment listed on page 67 of the brief which affects motorboats in Lake Pymatuning and increases the power which may be used from 6 horsepower to 10 horsepower.
The consent of Congress was sought to that agreement and obtained.
I would emphasize how diligently Congress has reviewed the many compacts brought before it.
Congress has often imposed conditions and restrictions, including time limitations before granting consent.
Congress has refused or failed to give consent in a number of instances including this one.
How then was the Multistate Tax Compact sustained by the court below?
Unknown Speaker: May I ask one other question, Mr. Griswold?
How many of these compacts has this court struck down or not?
Mr. Griswold: This court has never struck down any compact for not having been consented to by Congress, nor has it sustained any contract involving a multistate agreement with an active administrative agency having extensive powers delegated to it by the states.
Chief Justice Warren E. Burger: Is that because they just did not come here?
Mr. Griswold: I am sorry?
Chief Justice Warren E. Burger: You say we did not sustain any.
Is that because there were none presented?
Mr. Griswold: No such cases have been presented.
Take, for example, the Southern Regional Educational Compact.
As things worked out, this court’s decision in other cases came along and the concern about it disappeared and there was no occasion to attack it.
Justice Potter Stewart: Is it not that some of the financing of Meharry Medical College in Nashville goes through that contract?
Mr. Griswold: Yes, the first clause provided for multistate financing of Meharry Medical School, the objective being that that would then be a medical school for all the state’s parties and they could send their students there and not only be within the Games case but have a Congressional enactment which could arguable be contended to be under Section 5 of the 14th Amendment that that was a valid result.
Justice Potter Stewart: That medical school is still operating and it is still financed in that same way, is it not?
Mr. Griswold: The financing of it, I suspect, is very complicated, a great deal of it being charitable, and a very large amount of it being federal.
But, I do not know of the financing of Meharry.
Justice Thurgood Marshall: But Meharry was long before then.
It was in existence long before then.
Mr. Griswold: Yes, it was.
The problem arises because of a dictum of this court in Virginia against Tennessee.
It was clearly a dictum as is shown in our briefs.
The court held that Congress had given its consent long ago informally but effectively.
Having held that, the court then said it is evident that the prohibition of Article 1, Section 10 is directed to the formation of any compact tending to the increase of political power in the states which may encroach upon or interfere with the justice supremacy of the United States.
I would point out first that not only was that a dictum but it was a hard case.
It was a case where the boundary line had been established and accepted for 90 years.
It involved a one time, one place bilateral agreement and the same is true of this court’s more recent decision in New Hampshire against Maine, a year ago on which the court below also relied.
There, the boundary was established in 1740 by an order of the Privy Council in England more than 200 years ago.
The agreement before the court was simply a stipulation to settle a lawsuit involving a controversy as to the exact location of the boundary over the water.
I would have thought it would have been easier for the court simply to hold that since the constitution gives the court jurisdiction over suit between two states that a stipulation between the party settling that case, approved by the court was not a compact to which Article 1 Section 10 applied.
The essential fact, as I have said, here is that this court has never upheld the validity of a modern compact,I may say the modern period in compact really begins about 1921 with the Colorado River Compact, the Port of New York Authority.
Since then, there have been a substantial number of compacts involving multistate agreements with administrative bodies.
The court has never given its consent to a modern compact involving many states and creating an independent administrative commission to which Congress has not given its consent.
Indeed, since almost all compacts have sought and obtained the consent of Congress, few questions covering the validity of compacts, lacking Congressional consent have reached this court.
The cases which have come here have all involved one time, one place bilateral boundary agreements and have virtually no application to a wide-ranging multistate agreement such as that now before the court.
Justice William H. Rehnquist: Each of those two in the latter category you refer to, Mr. Griswold, the Tennessee-Virginia and New Hampshire-Maine were irrevocable compacts, were they not?
Mr. Griswold: Yes, they were, Mr. Justice.
Again, I think that really does not make any difference because, as long as they are joined together, the compact has an impact.
Justice William H. Rehnquist: I am curious though as to what consequences are visited upon your client by the existence of this agreement that could not be equally well visited upon them by similar legislation in the party states separately adapted?
Mr. Griswold: I think, Mr. Justice, that I would like to answer that in part by reading a sentence from the third annual report of the Multistate Tax Commission.
The Multistate Tax Compact is like all compacts, making it possible for states to accomplish cooperatively that which they cannot do separately.
This is really an instance.
I hate to use it because I am not suggesting that the states have been conspiring but that the law of conspiracy.
Three, four, or five people joined together to do something and it was recognized 300 years ago that that has impact above and beyond what anyone of the individual parties might do.
Justice William H. Rehnquist: But they joined together to audit your corporation’s tax returns.
That is no crime.
Mr. Griswold: I am not suggesting that it is a crime.
I am suggesting that when states joined together, they are doing something above and beyond what is done by each of the individual states.
A great many of the compacts which have been submitted to by Congress, many of them approved, some of them with qualifications and conditions and time limits, and some disapproved have been involved in advisory arrangements.
This is an agreement with a clout.
This compact provides that the Multistate Tax Commission has subpoena powers and that those subpoenas may be enforced by the courts of any state which is a member of the compact.
Chief Justice Warren E. Burger: What if the state refused to execute that particular provision?
What would happen?
Mr. Griswold: It would be violating the law.
The law of its legislature provides that it shall enforce the subpoenas of the multistate compact.
Chief Justice Warren E. Burger: Could it be expelled from the compact by the other signatories?
Mr. Griswold: It would be reversed by a State Supreme Court.
I do not suppose there would be a federal question so it would be hard to bring it here.
I think it might well be regarded as a support and that is unfortunate and will go on to the next case, but the law is clear that the courts of the states which are members of the compact shall enforce subpoenas against a resident of their state issued by the Multistate Tax Compact.
I am also reminded of an experience I had with General Hershey.
I tried to get him to do something and he said “I do have no power to do that.
All I can do is to recommend.”
Of course, there was nothing that was more emphatic than a recommendation from General Hershey.
I would like to call attention to a quotation from an article which is cited on page 10 of our reply brief relating to the Interstate Compact on Oil and Gas.
This is an article by Leech cited at the bottom of page 10 with respect to that compact which, incidentally, has been approved by Congress always with time limitations, always with requirements for report to Congress, and more recently with requirements that there would be reports to the Attorney General with respect to anti-trust implications.
Leech says “legally, it has no power.”
Actually, it is the most powerful and respected agency in the oil and gas industry.
I say, here, that the Multistate Tax Compact has an impact discussed at greater length in our brief and that, in the language of Justice Frankfurter and James M. Landis who wrote the great article in this field back in 1925, this is something where Congress should exercise its judgment.
They wrote in this article in the Yale Law Journal, historically the consent of Congress as a prerequisite to the validity of agreements by state superiors as the republican transformation of the needed approval of the crown.
But, the condition plainly had two very practical objectives in view, in conditioning agreement by states upon consent of Congress.
For only Congress is the appropriate organ for determining what arrangements between states come within the permissive class of agreement or compact, even the permissive agreements may affect the interests of states other than those parties to the agreement.
The national and not merely a regional interest may be involved.
Here, there is a very clear national interest involved as is evidenced by the pending treaty with the United Kingdom, the avoidance of double taxation treaty with the United Kingdom, which contains a provision insisted upon by the United Kingdom and a number of other countries are also concerned with it preventing the use of one of the practices of the Multistate Tax Commission called combination.
It is a little like consolidated return, only it is much broader than that.
We have gone into it in some detail in our brief.
The Chairman of the Multistate Tax Commission has appeared before the Senate Committee on Foreign Relations, an opposition to that provision of the treaty.
The task force on foreign income of the Ways and Means Committee has recommended that this provision be held inapplicable in foreign taxation and a recommendation has been made to the President that this be included in his current tax program.
This seems to me to be the clearest possible illustration of the fact that the activities of the Multistate Tax Commission do impinge upon the powers and authority of the United States and that they ought not to be allowed to be put into effect unless and until the compact has obtained the consent of Congress.
Unknown Speaker: Mr. Griswold, this case was decided on summary judgment, I take it.
Is all or almost all of the matters that you go through in your brief that you presented here with respect to impact in the record or throughout it is all subject to judicial notice, I do not know, but one of your questions that you presented here was whether the case should be decided on summary judgment.
But, you never developed that in your brief at all.
You simply prefer us to decide whether you should have had summary judgment instead of the other party.
Mr. Griswold: Whether the case should have been decided against us on summary judgment was a point which we wish to preserve and so we raised it in our question presented.
Unknown Speaker: You did not argue it.
Mr. Griswold: We did.
We wanted to avoid having somebody say “you never raised that question.”
That is one of the problems that council has.
We did raise in the District Court towards the end, the question that in view of the Compact Clause, the summary judgment should go for the plaintiffs and our position here is that all of the material or is material of which the court can take judicial notice such as this reference to the treaty with Great Britain which is pending before the senate Foreign Relations Committee now and the citations are given.
Unknown Speaker: But it would require us to deal with a lot of things the District Court has never dealt with.
Mr. Griswold: No, I do not think there is any requirement that the court do that.
I think that there is plenty of material in the record so that the court can hold that this Multistate Compact setting up an administrative commission with subpoena power, enforcement power, power to make regulations is one which is covered by the Compact Clause and cannot be put into effect without the consent of Congress.
Chief Justice Warren E. Burger: Mr. Dexter?
Argument of William D. Dexter
Mr. Dexter: Mr. Chief Justice and may it please the court.
There are several issues and questions that have been raised by Mr. Griswold, the argument that I think needs to be clarified and clarified immediately.
The first issue is the one that is implicit in listing compacts or agreements which have been approved by Congress and the reference to the fact that the Multistate Tax Compact was submitted to Congress.
First, it should be realized that two states in asking for admission to the compact and enacting the compact specifically made provision in their admission legislation for Congressional approval.
Congressional approval needed to be sought on that ground.Secondly, it certainly was a matter of expediency to do so, but the Attorney General’s opinion, the opinions of counsel to the commission clearly indicated that under the Virginia versus Tennessee test which have been the controlling test for a number of years, no Congressional consent was not required.
Justice Potter Stewart: Which Attorney General’s opinion?
Mr. Dexter: The Attorney General of Washington and the Attorney General’s opinion of Illinois.
Those were two opinions that were issued and, there, they indicated that Congressional consent was not required.
They looked at the provisions of the compact in light of the history and language of the test to be employed to determine its constitutionality of Virginia versus Tennessee and decided that this was not the kind of a compact or agreement which needed Congressional consent.
We simply say that the fact that compacts are submitted to Congress for Congressional consent are a matter of political expedience.
For instance, the Great Lakes Basin Compact which the appellants refered to in their brief, which was submitted to Congress finally for consent, the statement in the Congressional record regarding that consent simply says that in view of the dispute concerning the necessity for the compact it seems clear that it would be more prudent to secure Congressional consent rather than to forego consent and thereby throw a doubt on the validity of the compact and on the commission’s activity.
I submit that the taking and throwing together all of the compacts that Congress has approved and then telling this court that that is the constitutional test, that is what the compact means under the constitution is not appropriate.
We rather believe that the appropriate test to determine the validity of a compact including the compact in question is to look at the judicial history concerning that Compact Clause.
In Virginia versus Tennessee, it is true that the language of Justice Field was dicta.
It is also true that he went at great lengths to explain and understand the purpose and meaning of the Compact Clause in the United States constitution.
He, in that decision, laid down a test, a standard by which that clause could be interpreted.
It was a test for all time.
It was a test for all kinds of compact.
Then, in that decision, he went ahead and applied that test to determine the validity of the compact in question.
This court in New Hampshire versus Maine followed exactly the same procedure.
The first question is what does the Compact Clause mean?
Not in the context of a boundary dispute but in the context of the constitution.
This court, there, referred to the Virginia versus Tennessee test and simply gave the Compact Clause that interpretation and then turned around and applied it to the boundary agreement there involved and found no Congressional consent was required.
Since Virginia versus Tennessee, the State Courts have uniformly followed that test.
That test simply is whether or not a compact increases the political power of the states in a manner which tends to impinge or encroach upon just federal supremacy.
Justice Potter Stewart: Do you say the State Courts have followed that decision?
Mr. Dexter: The state courts, Your Honors, have followed that decision and several of the decisions are put forth in our brief.
In fact, the early case in 1854 of Union Branch Railroad Co.a Georgia case cited in our brief, actually ended up with the same kind of standard.
It simply said that the Compact Clause did not mean all agreement.
It meant those political types of agreements which would tend to interfere or encroach upon federal supremacy.
I think that that decision may well have influenced the decisions of Justice Field in Virginia versus Tennessee.
Unknown Speaker: What about agreements that might encroach upon the supremacy of the United States which might not tend to increase the political power of the states, or do you think that any agreement that tends to encroach would intend to increase the political power of the state?
Mr. Dexter: I would think that any encroachment would tend to increase the political power of the state.
Unknown Speaker: Really, that is the test?
Mr. Dexter: Yes.
There are some cases where this court has upheld an increase of the power of the state.
For instance, reciprocal legislation such as that approved by this court in Port of New York versus O’Neill, 359 US 1, which I would like to call to the court’s attention and I have not put in my brief.
In that case, the court recognized that, by reciprocal legislation which was in the nature of an agreement, each court was really extending its enforcement powers cooperatively by agreement in other states.
Under that case, this court upheld the expedition of a witness from Florida to New York in a criminal proceeding as a result of reciprocal legislation.
Unknown Speaker: But if you show encroachment you need not to go on and show, separately, increase in political power.
Mr. Dexter: No, I think the fact of encroachment is a tantamount to indicating that the states are trying to interfere or encroach upon federal supremacy.
Chief Justice Warren E. Burger: The power would not necessarily go somewhere.
If it left the federal, it would not just go in limbo.
It would be bound to flow into something.
Mr. Dexter: Yes, it would have to flow, Your Honor, to the state.
That is right.
Do we think this is the standard that this court should apply in this case?
Justice Thurgood Marshall: Let us put it in another way.
Normally, if a state wants to find out about the tax basis of a corporation in another state they have to go to federal government to do it.
Mr. Dexter: There is exchange of information agreements between the state and between the state and the federal government.
There is exchange of audited information and so forth.
Justice Thurgood Marshall: You do not think that is involved in this encroachment?
Mr. Dexter: No, I think that if an agreement by the states to exchange tax information is valid, basically, the compact does very little more with the joint audit program.
Unknown Speaker: What is your answer to Mr. Griswold’s argument in the light of what you just said about encroachment in respect of the pending treaty?
Mr. Dexter: In the first place, as we indicated in our brief, there is no provision of the Multistate Tax Compact that has anything to do with combined reporting.
The only substantive income tax provision there is contained in Article 3 and 4.Article 3 grants the taxpayer two options.
It permits a taxpayer with a minimal presence and sales in a state to use a simplified form of reporting.
All multistate taxpayers, under Article 3, have a right to apportion or allocate their income as an option in accordance with Article 4 of the compact.
Article 4 contains the language of the Uniform Division of Income for Tax Purposes Act.
That language has to do with the Division of Income.
It has nothing to do with combined reporting and there is no provision in the compact, there is no rule or regulation the commission has ever issued, there is not audit that has ever been conducted by the commission that touches upon the subject matter in the United Kingdom treaty.
I think, we explained that very definitely in our brief.
It is simply a red herring to pull in the UK treaty and indicate that this has something to do with the compact.
Justice William H. Rehnquist: But it is not your organization that is planning to enter into a treaty with the United Kingdom.
Mr. Dexter: No.
Justice William H. Rehnquist: It is the United States.
Mr. Dexter: Right, and the compact does not mentioned.
Article 9 for the compact would prevent the states from including a foreign United Kingdom parent in a combined return with the US domestic subsidiary.
Justice William H. Rehnquist: But if that is inconsistent with some provision of a federal treaty, I take it Missouri versus Holland would invalidate that.
Mr. Dexter: There is no question about that, Your Honor.
But, the treaty has enacted, as we indicated in our brief that it does.
That practice which is state practice and has nothing to do with the compact would have obviously to be changed.
The United Kingdom treaty has absolutely nothing to do with the compact or what has been done in reference to its administration.
I would like to indicate that this case was here on a motion for a summary judgment.
The United States District Court for the Southern District of New York requires what they call a 9G statement.
In that statement, the party moving for a summary judgment has to set forth what he believes to be the undisputed facts in the cause.
We did that.
The appellants came back, did not deny anything that was set forth there.
Those statements in the 9G statement of the appellee are in contra verdict.
It should further be indicated to this court that both the Three-Judge Court below and the Supreme Court of Washington in the Hertz case found that what the appellants were arguing for is the constitutionality of the compact on its face.
They asked that the compact be declared void in toto and that its commission be disbanded.
We submit that this is a matter of law.
All of that is required to determine the constitutional test to be applied under Virginia versus Tennessee, look at the provisions of this compact and see whether or not that test is violated.
Unknown Speaker: Was your motion for summary judgment ever opposed on the grounds that there were still factual matters to be resolved?
Mr. Dexter: Yes, they argued that there are a lot of factual matters but the lower court, in reference to that argument, simply said this “no contention is made that the compact is being administered other than according to its terms.”
I am reading it from 3a of the Appendix A of the Jurisdictional Statement.
“No contention is made that the compact is being administered other than according to its term, except as to particulars governed by the subsidy tax laws of the respective party’s statement.”
The constitutional issues posed by this complaint reduced themselves to questions of law.
Certain of the issues of the fact that the plaintiffs seek to raise are purely hypothetical and speculating.
As to these issues, plaintiffs have not “set forth specific facts showing there is a genuine issue for trial,” Rule 56 efr.Civil Procedure.
Certain other claims and issues or fact are plainly not material to the determination of the merits of the constitutional arguments raised here.
Yes, there was an argument that we want more and more discovery and they have drawers of discovery concerning everything that anybody can conceivably ever said or did in reference to the compact including copies of every audit that the Commission has ever made in (Inaudible).
We do not believe that there is, here, any question of what this is a question of the constitutionality of this compact on its face.
I would like to indicate that Article 12 of the compact contains a Severability Clause.
Under that clause, it is incumbent upon the appellant to show what provisions, if any, of the compact were unconstitutional.
Only those provisions become inoperative under Article 12.
The remainder of the provisions remain in full force and effect.You have to take Virginia versus Tennessee test or whatever test this court wishes to apply in interpreting the compact clause and look at it in reference to each of the compact provision.
I would suggest that the only real issue in this clause is whether or not the tax administrators of the member states can join together in a cooperative audit program and to authorize the commission of which they are members to act as their auditing agent in order to enforce their own tax law.
Now, to understand that this is the only issue, it is necessary to quickly refer to the substantive provisions of the compact.
I have already commented on Article 3 and Article 4.
Those are optional provisions solely for the benefit of the taxpayers.
They could, in no eyes, burden interstate commerce and they are no different than reciprocal legislation such as upheld by this court in Bode versus Barrett and in New York versus O’Neill and needs no further comment.
Article 5 of the compact grants certain options to multistate taxpayers for sales and used tax purposes.
They are for the furtherance of interstate commerce.
They are a benefit to taxpayers.
It could not possible deny the appellants any constitutional right and we believe raise no serious question.
The powers of the commission or this tremendous authority that the appellants are referring to in their brief are contained in Articles 7 and 8 and in paragraph 3 of Article 6 of the compact.
Paragraph 3 of Article 6 of the compact gives the commission only the authority to study, to recommend, and to issue proposals that would aid in the uniform application and the relief of compliance problems in state and local tax math.
This advisory and recommends the authority function of the commission is no different than discharged by a merit of organizations between the states and the National Governor’s Conference, the National Association of Attorney General, the National Association of Tax Administrator.
It is no different in function than that of the National Conference of Commissioners on Uniform State Laws.
They have the power to get together as a state agency to recommend uniform laws that affect the national interest, I suppose, and effect the interstate commerce.
Chief Justice Warren E. Burger: Do any of them have subpoena power?
Mr. Dexter: No.
The subpoena power of the commission is in Article 8 and I would address that now, although it is a little out of order of what I was going to say.
The Article 8 does grant the Tax Commission as the auditing agent of a tax administrator to go to the ports of member states to enforce that subpoena.
This authority is no different than the authority that each individual tax administrator has on his own account.
This led the Supreme Court of Washington in the Hertz case and the Three-Judge Court below to conclude that there was no ship to power among the states by the subpoena power and that there was no encroachment on federal supremacy.
All that the commission is doing is standing in the state of the tax administrator of each state as his agent.
It is true that Article 8 of the compact permits the commission to go into any member state that has adapted Article 8 and enforce that subpoena.
But, it submitted that this extension or increase of state power is specifically upheld by this court in New York versus the O’Neill case that the courts can make arrangements among themselves and agree to make their ports available to enforce the laws of another states.
There is a whole series of reciprocal legislation or agreements in the nature of reciprocal legislation that the states utilize for this purpose.
It should also be realized that that provision of the compact is severable.
It is not necessary for the joint audit program.
Many of the subpoenas and court proceedings that the appellants have referred to in their brief, as of uses by the commission, were really subpoenas by the individual State Courts asking their courts to enforce that subpoena that requested that the multistate taxpayer turn their books and records over to the commission as an agent for audit purposes.
It was state subpoenas that were used, that were complained of in the appellant’s brief.
This is why we asserted there that such allegations did not involve any authority or power of the commission.
But, we believe even though the subpoena power is severable, not necessary to the validity or working of the join audit program that itself has no constitutional defect.
I would like to move on.
The other substantive provision in the compact is Article 7.
It permits the tax administrators of the member states to issue advisory regulations and form where state laws are uniform or similar.
This is purely an advisory function.
The only regulations that this commission has promulgated at all concern Article 4 of the compact which is the optional provision.
It contains the language of the Uniform Division of the Income for Tax Purposes Act promulgated by the National Conference of Commissioners on Uniform State Laws.
This ability to issue advisory regulations that are optional with the state is no different than the ability of any person or entity whatsoever.
It is done with the National Conference of Commissioners on Uniform State Laws.
It has been done for years by the National Association of Tax Administrators.
It could be done by the American Bar Association, any other group, or individual whatsoever.
It is purely advisory to have no force or effect until they are adapted by the state and, surprisingly, the only regulation that the appellants are complaining about here has to do with an optional provision under the compact.
Therefore, before the regulations under Article 4 adapted by the commission can be applicable to appellants two things must happen.
One, they have to elect through apportion or allocate their income under Article 4.
Secondly, a state has to adapt those regulations as their own regulation.
When they do, it becomes their regulation and not the advisory regulations of the commission.
Unknown Speaker: In that respect, I suppose you are arguing that this puts it in the same category as the Commission on Uniform State Laws that each member can take it or leave it.
Mr. Dexter: That is precisely true, your honor.
It has no more binding effect than any recommendation of the commission.
That so-called power in the commission is one of these great powers that the appellants attribute to the commission.
Under their argument, it contains a lot of abuses, interferes within the national affairs, interferes with the national interest, interferes with the interest of the non-member states, and interferes with commerce.
It just cannot be that way.
There is nothing of that kind of power involved.
Unknown Speaker: If it is all so simple, you ought to be able to get it approved by Congress, could you not?
Mr. Dexter: We have not sought to get it approved by Congress for a number of years.
The reason, we may not have it approved by Congress leads me to Article 8.
This may explain why we have problems with Congress and why appellants are bringing this lawsuit.
Article 8 of the compact, in addition to the subpoena power that we have just discussed, does give the commission the power to audit the books and records as agent of a multistate taxpayer.
This power or authority is not exercised except when a specific state authorizes the commission as its agent to audit the books and records.
The commission’s auditors have no power to fix or determine any tax liability, no authority to fix any policy of any member state in regards to any issue.
They act purely as agents of that member state.
Justice Thurgood Marshall: With the power of subpoena?
Mr. Dexter: What?
Justice Thurgood Marshall: With the power of subpoena.
Mr. Dexter: With the power of subpoena, your honor, but only as agents of the tax administrator in carrying that out.
I said a comparable power exists even as the commission’s audit by the administrator himself issuing a subpoena in his name asking the taxpayer to turn its books and records over to the commission as that tax commissioner’s auditing agent.
They are just parallel powers and there is no shift of power to the state that would in any way encroach upon federal supremacy as a result of that provision.
What appellants are saying is that each state that wants to audit the books and records, for example, of US Steel, must have their auditors lined up at the corporate headquarters of US Steel and wait their turn to conduct an audit.
When they finally get through the forfeit doors, they are entitled to pick up information only for that one state.
The basic issue here is whether or not the tax administrators of the member state responsible for administration of state laws cannot work together in a cooperative audit program.
The appellants want no part of that and the only reason we can think that they do not want any part of it because this extends the capability of the states to enforce their tax laws.
I submit to Your Honors that that kind of capability is in national interest.
It is in the interest of the states and it is in the interest of all the taxpayers.
Unknown Speaker: You said you would tell us why this problem my give difficulties with the Congress.
Mr. Dexter: Yes, because appellants and clause and a lot of the multistate taxpayers are opposing it in Congress and want other federal legislation.
The compact arose out of the possibility of restrictive legislation that the appellants and others were pushing in Congress.
This is why the compact contains beneficial provisions for multistate taxpayers in trying to solve some of the problems.
But, we are trying to get uniformity and compatibility in the state tax system and to help the state enforce their tax laws.
They want no part of that.
I would like to indicate the admission of the appellants in regard to the effect of the compact.
They say, on page 12 of their brief, the potential impact of such a compact is not readily determinable.
We suggest that it does not have any potential impact on federal supremacy and that is the reason it is not determinable.
All we are suggesting to this court is examine the case law concerning the compact clause , look at the specific provisions of the compact clause in the light of the appellant’s argument and we are confident you will come out with the same conclusions that the Three-Judge Court did in its well recent opinion.
We do not believe it is adequate for the appellant simply to throw judicial history out of the window, call it dicta, limit it to boundary disputes and hopefully, in that way, have this court come up with some different and new standards.
The constitution means the same thing regardless of the subject matter involved, whether it involves boundary disputes, reciprocal legislation, and so forth.
We believe the reasoning of Justice Felix Frankfurter in the case of New York versus O’Neill is instructive and helpful in resolving this question.
Chief Justice Warren E. Burger: Mr. Dexter, is there anything in the record, I take it there is not, as to why these states, that withdrew, withdrew?
Mr. Dexter: These states withdrew, Your Honor, as a practical matter because the Committee on State Taxes of the Council of State Government composed of 106 of the largest corporations in the United States have as one of their objectives to destroy the cooperative effort represented by these provisions I have referred to you today.
That is why those states withdrew.
Justice Thurgood Marshall: Is that in the record?
Mr. Dexter: No.
Justice Thurgood Marshall: I thought the question was that.
Mr. Dexter: I am sorry.
There is nothing in the record in terms of why the states withdrew.
Appellants seem to think they know and they refer to it in our brief.
We have not.
We do not know.
I am simply talking to you as simply a lawyer to a lawyer in terms of what I understand.
Unknown Speaker: Of course, whether it is in the record or not you, in representing the commission, must know what it would be.
It certainly would not be the lack of it.
Mr. Dexter: Yes, there were certainly political struggles and these were the people that we were struggling with.
Chief Justice Warren E. Burger: We have allowed your friend to go a couple of minutes over.
Do you care to respond?
There would be about two minutes available, Mr. Griswold.
Rebuttal of Erwin N. Griswold
Mr. Griswold: Thank you, Mr. Chief Justice.
I would like to deal with Mr. Justice Blackmun’s question first.
It is an instance of how this commission pays no attention to the compact.
The compact provided expressly that each state shall have one vote.
California came in on condition that nothing should be passed unless there was vote of a majority of the population of the states.
That gave California almost a veto, not quite, but California and two or three other states can veto and the legislative history is clear that that is the reason why Indiana withdrew.
The annual reports of the commission make it plain that the genesis of the compact was to head off federal legislation with respect to taxation of interstate businesses.
In other words, in its very origin, its purpose was to interfere with the exercise of federal power.
Reference has been made to UDITPA, the Uniform Division of Income for Tax Purposes Act.
UDITPA provides for allocation of non-business income.
But, the commission by its regulations provides that virtually all non-business income shall be apportioned.
Here again as several commentators cited in our brief have shown the commission paid simply no attention to the law.
You can say “it only has recommend their mandatory power” but it recommends to the states that they proceed this way and they do proceed that way as is evidenced by an item in the record where the commission recommended to a number of state that they make arbitrary assessments against corporations which did not comply with the actions of the state commissioners and that this would be a means of bringing about their capitulation.
I would like to refer particularly to an opinion by Deputy Attorney General Katzenbach in a letter by him.
In our brief, we have mistakenly said the Attorney General.
He was later Attorney General.
But, when he wrote the letter he was Deputy Attorney General dealing with the Great Lake’s compact in which he pointed out that merely because it was advisory did not mean that it could have impact on the powers of the federal government.
Chief Justice Warren E. Burger: I think that consumes your additional time, Mr. Griswold.
Mr. Griswold: We have limped along too long on Virginia against Tennessee.
It is time for the court to bring the Compact Clause into the modern age.
Chief Justice Warren E. Burger: Thank you, Gentlemen.
The case is submitted.