SOUTH CAROLINA v. REGAN
Legal provision: 26 U.S.C. 7421
ORAL ARGUMENT OF HUGER SINKLER, ESQ. ON BEHALF OF THE PLAINTIFF
Chief Justice Warren E. Burger: We will hear arguments first this morning in South Carolina against Secretary Regan.
Mr. Sinkler, you may proceed whenever you are ready.
Huger Sinkler: Mr. Chief Justice, and may it please this Court:
South Carolina this morning responds to the leave granted by this Court to argue that this Court take original jurisdiction to dispose of the case which it seeks to bring against the Secretary of the Treasury.
Since its inception, South Carolina has been joined by perhaps some 27 states, and for that reason, we move before this Court... The Court granted permission to divide argument and I, thus, will yield ten minutes of my argument to the Assistant Attorney General from Texas.
She will stress the financial burdens that result to the states on account of this provision in the law.
The Solicitor General has suggested in his brief... I think it was in a footnote... that since this case so clearly lacks merit that the Court dismiss and grant him the relief.
I think that necessitates comment on the true issues that are involved here.
This case really has a historic background.
In 1894, Congress inacted an Income Tax Law which was broad and widesweeping.
It included a provision taxing the interest on notes and bonds of whatever nature, except those bonds of the United States which, by the terms of their issuance, were exempt from taxation.
That produced the famous litigation of Pollock against Farmers' Loan and Trust Company which was twice heard by this Court.
At all times, it was unanimous that the very nature of the federal system prevented the imposition of the tax on the interest on state bonds.
However, because of its holding with respect to the lack of power to impose an excise tax on interest and dividends and rents, the law was declared... which had been declared unconstitutional by five to four in Pollock, really resulted in the adoption of the 16th Amendment.
Now, from the time of Pollock until 1982, with the enactment of TEFRA, Congress had conceded, although it was done originally by Mr. Cordell Hull as Chairman of the Ways and Means Committee in 1913, the fact that interest on state bonds was immune from taxation, but in TEFRA we see a direct challenge.
And, meanwhile the Court, while never having precisely this question before it, repeatedly said time after time that the doctrine of reciprocal immunity, which was essential to the federal system, resulted in the freedom from taxation of interest on state bonds.
That lasted until 1982 when TEFRA challenges both the meaning of the 16th Amendment, as has been announced by this Court, although technically, I suppose, those pronouncements are dicta.
They were pronounced so many times they seemed to work themselves into the body and tradition of the law.
And, they have further challenged... Must further argue that the 16th Amendment permits this tax.
We don't think it does.
The Solicitor General has urged that this Court should not take jurisdiction of this case despite the fact that the second clause of the second section of Article III of the Constitution specifically grants to this Court original jurisdiction in actions which involve a state and a citizen of another state.
What we are doing here, of course, is to seek an injunction against the Secretary of the Treasurer in the traditional fashion of enjoining an officer of the United States for performing... acting under an unconstitutional statute, and, thus, performing an illegal act.
I think Marbury against Madison got into this Court in the same way.
Unidentified Justice: Mr. Sinkler, can I ask you one question?
Huger Sinkler: Surely.
Unidentified Justice: You have left the merits and are going to the injunction act.
In your view would Congress have the power to pass a statute that said all bonds traded in the interstate market must be in registered form, including those issued by a state, without any taxation as a penalty?
Huger Sinkler: I don't think they do.
I think that is an invasion of the state's right.
I think maybe in that case you might get yourself... Your determination might rest on a balancing of equities as has been traditional where the commerce clause is involved.
Whereas here, where the taxation clause power is involved, what you really have here is a question of reciprocal immunity, one that really goes to the very nature of the federal system.
Unidentified Justice: But, that would be a lesser burden or a greater burden on the state than the one they have now because you can avoid the tax by selling--
Huger Sinkler: I think we meet both burdens, sir.
Unidentified Justice: --You do?
Huger Sinkler: I think we can meet both burdens and show you.
For instance, South Carolina sold $65 million of bonds on September 13 which we will deliver in New York next week.
We normally pay for paying agent services on an issue of $65 million... I think we have had some before and we figure it to be about $85,000.
The cost of paying registered... of issuing registered bonds.
Now, they are not so terribly expensive.
The cost of arranging for their transfers and arranging for checks to go out, we have an estimate from the Morgan Bank, which is our fiscal agent and bond registrar, that the cost of this issue, which has an average life to 11 years and extends to 00, will be $385,000.
South Carolina... which is an additional cost of, oh, I think it is $310,000.
It happens that South Carolina has approximately a debt of about $600 million and the state treasurer has structured that debt on a short-term basis so he will able to come back to the trough more frequently.
Well, if you just... assuming it was $650 million, you really have added costs in the neighborhood of over $3 million.
That is a good deal of money.
Unidentified Justice: Are you saying the federal government may not impose any regulation on the issuance of bonds that imposes any cost on the state?
You say they require to be printed in English and have certain disclosures and the like?
Huger Sinkler: I think what you really do... I don't think the federal government, if we are going to have the traditional federal system, which is espoused really as far back as Weston against the City of Charleston, in which they said at that time that the doctrine of immunities springs from the very union of the states and the national government.
I realize you can also justify that under the Supremacy Act which, I think, several members of this Court have made that statement.
I have no quarrel with that, but certainly as far as the reciprocal immunity which is granted to the states that results from the nature of the compact.
There is no provision in the Constitution of the United States to that effect.
As a matter of fact, the case, of course, went through the South Carolina constitutional court and by a four to three decision the majority said there is nothing in the Constitution of the United States which says we can't do this.
The dissenting judges said the very nature of the system makes it impossible for the state to tax the obligation of the federal government, because to do so... and I thought the interest rate comment was marvelous... even though Congress provide that the money be lent at ten percent, if the states can tax it, the Treasury of the United States will be powerless to borrow.
And, that is... See, the burden takes place, according to Chief Justice Marshall, the very existence of it creates a burden on the contract which has a sensible impact on the interest of the... influence on the contract itself.
And, furthermore, when one government can control the provisions, the actions of another government, then you obviously have that type of governmental interference which I personally believe the federal system precludes.
Unidentified Justice: Of course, the doctrine of intergovernmental immunity kind of reached a high point in the 1870's or 1880's and then some of this Court's cases in the 30's rather drastically cut back on this, especially where states are concerned.
Huger Sinkler: I think you did, but I think you have got good distinction.
Take, for instance, the most famous of all the people who were really affected by this case, Chief Justice Hughes, who in Wilcutts against Bunn, reaffirms and points out that the difference between the imposing of tax on capital gains and on the interest on bonds is that one transaction... The transaction between the state and its lender has been finished and that is a totally new transaction which results in part from the acumen of the person who bought the bonds.
Unidentified Justice: Did that case involve intergovernmental immunities?
Huger Sinkler: He quotes Weston and reaffirms everything that I've I said.
Of course, Governor Hughes started the great debate with his message... As governor with his message to the General Assembly of New York in January of 1910 and that produced the language and the 16th Amendment came into focus.
There was this great debate which was joined in by Senator Bora, by Senator Elihu Root, and President Taft himself, on the basis of the apparent success in persuading the public, the 16th Amendment was adopted.
Hughes twice took a curtain call on the scene.
He was a Justice in the case of Brushaber against Union Pracific, the first case following the adoption of the 16th Amendment, which held that it merely sought to accomplish that which Pollock denied, the right to tax rents, interest, and income.
Hughes, of course, writing Willcutts against Bunns as Chief Justice, reaffirms all of that.
Unidentified Justice: What about federal taxation and the salaries of state employees?
Huger Sinkler: Well, there the taxes paid by the individual employee... It is a nondiscriminatory tax so widespread that it does not affect... This honorable Court has held that it does not affect--
Unidentified Justice: Well, I suppose it might increase the state's cost of its labor force.
Huger Sinkler: --I think it probably might but that is an incidental cost that this Court saw fit to declare--
Unidentified Justice: Suppose the government, instead of speaking about registered bonds, just subjected to income taxation all of the interest on all state bonds?
Huger Sinkler: --Well, if you do that--
Unidentified Justice: And, of course, that tax would be paid by the holders of the bonds.
Huger Sinkler: --Let me suggest to you some of the... The taxes paid by the state itself, the fact that there can be a tax makes the state pay the tax.
Now, when we sold these bonds, we had no choice of taking... of issuing coupon bonds.
That would have been ridiculous.
We couldn't get a market on that.
We obviously had to sell fully registered bonds.
I did provide the proceedings that if this litigation resulted the way I hope it would, we might later issue coupon bonds, but from a practical standpoint, we issued bonds.
I think the difference in cost to the State of South Carolina on a $65 million issue... We paid 8.1.
I think it would run to perhaps 11.
I am comparing South Carolina's AAA credit... IBM is AAA credit.
IBM is obviously more--
Unidentified Justice: So you think South Carolina is paying an increased interest, the equivalent of the tax burden on the holder?
Huger Sinkler: --Yes, we pay it.
We obviously pay.
There is no question about it.
The market would demand otherwise.
People don't buy such state bonds.
They are looking for the net interest cost.
That is all very carefully calculated.
Now, this TEFRA also put in a provision which limited the deduction that banks might take for borrowed money, and I suppose all bank money is borrowed money.
When they came to calculate their income tax, it included 15 % of the tax-exempt interest.
Now, that is not challenged, because I think the Court could levy a tax without... The Congress could levy a tax without any exemptions.
I think that is a totally different situation.
But, immediately after that 15 % went into effect, rates were adjusted by major banks so that they ended up by the issue of paying that additional tax.
It is inevitable.
There is no possible way that the issue can escape the tax.
But, I think even worse, the consequences of this is the consequences of Congress taking over the local affairs of government.
Chief Justice Warren E. Burger: Ms. Voss?
ORAL ARGUMENT OF SUSAN LEE VOSS, ESQ. AS AMICI CURIAE
Susan Lee Voss: Mr. Chief Justice, and may it please the Court:
An immeasurable and heavy financial burden has been put on the key sovereign operations of the states by the enactment of this particular section of TEFRA against a dubious benefit to treasury, enforcing the prevention of tax evasion.
Moreover, the Solicitor General has suggested in his brief that tax exemption of municipal bonds as a matter of constitutional right is a debatable proposition.
My portion of this argument will try to show the financial consequences of the effects of those two propositions and why this appeal to the Court's original jurisdiction is necessary for the protection of the states.
Unidentified Justice: Ms. Voss, there are many things the federal government does by way of congressional or regulatory requirements that end up costing states a lot of money.
So, how does the financial burden alone support your argument?
Susan Lee Voss: This particular financial burden goes to the basic premise in the Constitution of federalism, something which has been guaranteed to the states since constitution law started.
You can trace it back to McCullough versus Maryland if you wanted to.
But, each day this law is in effect... In Texas alone, you have at least one issuer going to market, paying somewhere between $5,000 and $14,000 in registrar fees that they didn't have to pay before a year.
Now, you are talking of each one of 3,395 Texas issuers goes to market one time, about $17 million annually in additional registrar costs.
These are costs that these issuers did not have to bear before.
There are about 47,000 municipal issuers in this country.
And, those registrar costs hit the little issuers a lot harder than they hit the big issuers.
One of the big guys like the University of Texas that doesn't really usually go to market for less than $20 million at a time is going to pay lower registrar fees than some little school district that can barely issue on its tax base maybe $1 million to renovate a 60-year old schoolhouse.
And those figures only represent the registrar fees.
Additional attorney's fee are extra, additional costs of documentation are extra.
Registrar fees do not even include the postage for mailing out the interest checks.
Unidentified Justice: And the income from the oil wells.
Susan Lee Voss: I beg your pardon?
Unidentified Justice: And the income from the oil wells at the University of Texas.
Susan Lee Voss: Well, that is permanent university fund money.
But, we are not just talking about a financial burden alone.
It is a financial burden that is going to help cripple the ability of issuers to perform their governmental functions.
You are talking about a jail.
As many of you probably know, Texas probably has five inmates to a cell that was meant to hold two and is under federal court order to improve conditions.
Unidentified Justice: General Voss, could I ask you,--
Susan Lee Voss: Yes.
Unidentified Justice: --supposing the federal government were to have regulations with the kind of disclosures a borrower has to make when it issues bonds and they say you have to file a registration statement and tell where you are financially solvent and all that sort of thing which is costly to hire accountants to prepare the statement.
Could they require a state issuer to comply with rules of that kind do you think?
Susan Lee Voss: As as a matter of marketing bonds, state issuers presently comply with those sorts of requirements.
Unidentified Justice: No, but assume... Could the federal government compel them to, and, say, could they change those to make them more burdensome without violating their--
Susan Lee Voss: That particular issue has never been challenged as to its constitutionality.
The states have been complying with it as a marketing matter and I have serious questions as to its constitutionality.
Unidentified Justice: --It seems to me your argument would apply to that as well.
You are basically arguing that there is no power in the federal government to impose any burden whatsoever upon a state issuing bonds which is a rather extreme position.
But, that is your position, I take it?
Susan Lee Voss: Yes, sir.
When you have something like the jail renovations which are required to be done and there is no money to do them because you had to replace a school that burned down and you had increased cost of issuance on those bonds... Probably the school burned down because you knew you needed the fire house over there, but you didn't have money for that, because you had more cost of issuance on the sewage treatment plant.
You are talking about serious problems with that.
And, as to the removal of the income tax exemption altogether, you are going to foreclose many issuers from the market place completely.
The only attraction that their paper has in the market place right now is that tax-exempt feature.
Unidentified Justice: Of course, we don't have to decide that in this case, do we, whether or not the federal government has the power to tax the income from municipal bonds?
Susan Lee Voss: No, that is not before you, sir.
South Carolina has made an appropriate call as the real party in interest to the jurisdiction of this Court as constitutionally provided and it is simply inconceivable that an act of Congress could deprive the state of that forum, particularly with the financial burden to our governmental functions that this law has created.
I submit that this is as appropriate case for this Court's original jurisdiction.
Chief Justice Warren E. Burger: Mr. Claiborne.
ORAL ARGUMENT OF LOUIS F. CLAIBORNE, ESQ. ON BEHALF OF THE DEFENDANT
Louis F. Claiborne: Mr. Chief Justice, and may it please the Court:
Let me say straight away, lest the contrary impression has been given by our concentration on jurisdictional obstacles to this Court entertaining the case, that we are not in the least shy in reaching the merits.
If the Court concludes, contrary to our submission, that the Anti-Injunction Act is not a barrier, we are not reluctant to meet South Carolina's constitutional challenge.
And, while this Court is not required to hear the case, the Secretary is content that the merits be decided here.
Indeed, we submit, as has been said, that the constitutionality of the statute is sufficiently clear that the Court could properly dispose of the case at this stage on this motion for leave to file.
After all, what is... And, all that is involved here is an indirect... is only indirect requirement that all obligations which extend for more than a year, no matter by whom issued, whether by the United States, by corporations, by states and municipalities, if issued to the general public, shall be in registered form.
Now, this is in no sense discriminatory.
It is only the mildest intrusion on states' sovereignty.
It seems to us far less so than the requirements sustained, for instance, for withholding income tax from state employees.
Unidentified Justice: What is the government's interest, Mr. Claiborne?
Louis F. Claiborne: Congress determined, on the basis of elaborate hearings and evidence before it, that there are bonds where one common means, device, for avoiding gift tax, estate tax, capital gains tax on the exchange of those bonds, that is was moreover a haven for illegally obtained monies and finally its right to add that theft and interstate transportation of stolen securities is facilitated when bonds are in bearer rather than registered form.
Those considerations, all of which bear on plain powers of Congress inferred by Article I, fully justify the federal interest in enacting this statute.
Unidentified Justice: Since I am old enough to remember when registered bonds were rather frequently encountered, they disappeared over the years.
Certainly there can't be much federal government interest in getting to the tax as such.
Louis F. Claiborne: Quite candidly, Justice Blackmun, this is not a revenue agency measure.
It has a revenue aspect.
It is an exercise of the taxing power in that it is necessary and proper means to attempt to diminish tax evasion and tax avoidance.
In that sense, it is an exercise of the taxing power.
But, the object of the exercise is not to raise additional taxes.
Unidentified Justice: Except that the government... the Congress retreat from the withholding of interest and dividends that makes this argument sound rather hollow, doesn't it?
Louis F. Claiborne: It may be that there is some tension between those two contradictory actions of the Congress, but we are here defending that portion of the legislation which did pass and which, to some degree at least, avoids what is otherwise determined to be a common way of avoiding, as I say, both gift and estate taxes and also capital gains taxes.
Now, the burden imposed on the states as a result of this is surely less than the burden imposed by many other federal regulations, including the one I have just mentioned, the requirement of withholding.
And, as to the costs, the additional costs imposed on the states, we have not attempted to produce counter affidavits, but it is fair to surmise that there would be offsetting economies in the area of insurance and handling, and, of course, the statute does not require that the bonds, though issued in registered form, be issued through certificates.
Unidentified Justice: If the burden is a factual matter, you are suggesting that we ought to surmise that there would be offsetting benefits really doesn't dispense with the necessity of some sort of an inquiry if a there is a factual... if the factual question of burden should play a part in deciding the case.
Louis F. Claiborne: Quite so, Justice Rehnquist, though I take Justice O'Connor's point that the exact degree of the burden is not constitutionally relevant so long as there is a plain exercise of the power Congress under Article I and even, accepting the allegations of the plaintiff states, no impermissible burden imposed on the power of the State of South Carolina or any other to raise revenues.
This is simply a question of what form of revenue shall be raised.
It is not an attempt to tax the interest on all state and municipal bonds.
And, of course, it is in no sense a prohibition or inhibition on the states' power to raise monies.
We would answer Justice Stevens' question, whether if this statute were not in the form of a tax, but was simply a uniform requirement imposed on all issuers of all obligations of a certain character, that they be in registered form.
We would defend that statute in the same way that we do this one.
Unidentified Justice: Mr. Claiborne, may I ask, if our decision is to grant the motion for leave to file, would it be necessary to appoint a special master?
Louis F. Claiborne: We would say not and we would say not for the reasons I have suggested in invoking Justice O'Connor's comment.
It may be that the Court will feel that the degree of the burden, as Justice Rehnquist suggests, is a matter which... and the question of whether there are, indeed, offsetting economies, is one that appropriately requires the hearing of evidence, in which event a master--
Unidentified Justice: But, that would be the only inquiry that need be made?
Louis F. Claiborne: --As I see it, Justice Brennan.
That is the only potential question that a master might be able to take evidence and help this Court toward its--
Unidentified Justice: Mr. Claiborne, does the federal government have the authority to withdraw altogether the tax exemption on income from state and municipal bonds?
Louis F. Claiborne: --Justice Powell, we would say yes.
Unidentified Justice: The government does have the authority?
Louis F. Claiborne: We so allege.
Unidentified Justice: Yes.
Louis F. Claiborne: We do not think it is necessary for the Court to reach that question in this case.
Unidentified Justice: But, is there a limiting principle, and, if so, where is it?
Louis F. Claiborne: Well, if contrary to our position, the United States cannot deny exemption to state and municipal obligations altogether, then there must be a limit.
We would say that this doesn't approach that limit since it doesn't deny the exemption to all registered bonds and merely requires that in order to earn the exemptions the bonds be issued in that in that form.
Unidentified Justice: But, that is a matter--
Louis F. Claiborne: Which is a traditional form.
It is not an exceptional requirement.
Unidentified Justice: --Could the federal government do what it has done to the rest of the public and that is start with a very low income tax on state and municipal securities and gradually move it up?
Louis F. Claiborne: Justice Powell, I haven't had an opportunity to consider that question.
I would suppose that the power to tax when abused amounts to destroying the states'... how to raise revenue, but this Court has said we sit here to assure that that limit is not reached.
What that limit is--
Unidentified Justice: The power to tax is not limited by the 10th Amendment?
Louis F. Claiborne: --The power to tax may be limited, but it is not eliminated by the 10th Amendment.
Unidentified Justice: Mr. Claiborne, you don't concede that this is a tax on the state, do you?
It is a tax on the bond holders.
Louis F. Claiborne: It is a tax on the bond interest.
I am assuming, for the purpose of answering Justice Powell, that the state's immunity does run to the bond holder, otherwise, there is no question of a limitation.
Now, we have invoked jurisdictional barriers to this Court's entertaining the case and we have done so because we deemed it our duty to bring to the Court's attention what seemed to us plain obstacles to reaching the merits in this case.
It is principle that no court should decide that which it lacks jurisdiction to decide or that it ought not be decided prematurely is a principle of more importance than the result in any given case.
It is important for the maintenance of the Court system.
And, in this instance, it is important for the government's interest.
It is familiar that few things are more salutary to our tax system than the rule embodied in statute for over a hundred years that no suit will lie to enjoin the collection of taxes.
And, indeed, most states... I don't know whether it be true or not with respect to South Carolina and Texas, but it is the general rule in most states that they have a light rule with the respect to enjoining of the collection of their own taxes.
Unidentified Justice: Mr. Claiborne, is your position about the power of Congress to limit the Court's jurisdiction somewhat contrary to Marbury versus Madison?
Louis F. Claiborne: We, Justice O'Connor, do not view it as a contradiction with the dictum in Marbury versus Madison because it seems to us that this is simply a procedural limitation on when this Court, as any other court, may entertain an action of this kind.
It is common ground, I take it, that a statute of limitations governs this Court in the exercise of its original jurisdiction as it governs every other court.
Unidentified Justice: Can the Congress limit the remedies that this Court can provide in the exercise of its jurisdiction, its original jurisdiction?
Louis F. Claiborne: We would say, yes, Justice O'Connor, that at least so long as the rule is uniform and non-discriminatory against the Court and it is simply a rule of procedure which announces when an injunction is appropriate.
Unidentified Justice: By that argument, can Congress limit the term in which this Court can sit or establish filing fees that would determine what cases could be taken?
Louis F. Claiborne: --Not what cases could be taken in terms of classes of cases.
My impression is that Congress does set the tone of this Court by statute.
But, I assume there are limits there.
I don't suppose the Congress could say this Court shall not sit for two years.
I assume, on the other hand, that it is permissible, as is present law, that the Congress may say that the Court shall begin its new term on the first Monday in October.
Unidentified Justice: If you were correct on the jurisdictional point, is there any way at all that South Carolina could get a hearing on its question in any court?
Louis F. Claiborne: It is not we who are preventing South Carolina from testing the issue by issuing their bonds, albeit it may be that those bonds may have to be issued in order to find purchasers at an abnormally high rate of interest.
But, if they wish to press the matter, that is obviously an available way in which it can be done.
It need not be a large issue.
Unidentified Justice: Well, then, the purchaser himself would have to file a suit, not South Carolina.
Louis F. Claiborne: Indeed.
But, there is no bar to the purchaser either challenging the deficiency in the Tax Court if he has failed to pay his interest on that issue of the bonds he holds or by refund suit in the District Court or the Claims Court.
But, whether or not there will, at the end of the day's practical matter, be an occasion to test the constitutionality of this statute is no reason why no other court can presently entertain this suit.
This Court ought to be driven to take jurisdiction; that is, it seems to us, entirely backwards.
Congress has, in the interest of sparing this Court's burdened docket, given concurrent jurisdiction in a case of this kind to the District Courts and what South Carolina would suggest is that because the anti-injunction statute bars the District Court from entertaining the suit, it out to be bounced back to this Court, the Court of all Courts, which ought to be less hospitable to litigation than the District Courts whose primary role is to entertain original cases.
Unidentified Justice: Well, that goes to the proper use of the discretion of this Court, whether to accept it or not, don't you think?
You are arguing instead that this Court cannot accept it.
Louis F. Claiborne: Justice O'Connor, I argue both.
I say that the legislative bar imposed by the Anti-Injunction Act, just like the legislative bar imposed by statute of limitations, just like the legislative bar imposed by the Norris-LaGuardia Act which, in turn, supplied to all the courts of the United States, which this is one, does apply here, and, hence, if it prevents the District Court from hearing the case, likewise prevents this Court from doing so.
This Court, however, may choose not to determine that issue and may, as a matter of its own discretion with an eye to the congressional policy, determine that it is inappropriate for this Court to do the business which other courts have been prevented from doing in obedience to a legislative policy of such longstanding and with such obvious salutary reasons behind it.
And, therefore, as a matter of discretion, if not as a matter of necessity, this Court ought to decline to entertain the action.
Unidentified Justice: Mr. Claiborne, have you considered the case of Allen against the Regents of the University of Georgia in connection with your argument, whether that isn't a response that you ought to deal with?
Louis F. Claiborne: Justice Stevens, I am aware of that case and it is very relevant to the present case.
I take it, however, that the way in which it was dealt with by this Court's opinion in the Bob Jones case indicates that in the Court's view it is no longer good law any more than the case on which it was based, the Beechnut case which had, in the Court's terms, eroded, if not scuttled, the Anti-Injunction Act.
In Allen, which was a five to three decision on this point, the Court felt constrained to allow, not as an original suit, to concede that the anti-injunction action there did not bar a suit to challenge the requirement that the University collect amusement tax on tickets sold at football games.
And, that may be very comparable to this case.
But, it does seem to us that that was a circumvention of the anti-injunction statute and, more importantly, it seems to us that the Court has so treated in its now current opinion in Bob Jones University versus Simon, and, indeed, in the companion case.
The argument the other way was put as eloquently as could be in the Americans United case by the dissenting opinion of Justice Blackmun and... But, that view did not prevail and it seems to us that that view is precisely the view of what had been embraced by the Court in the Allen case.
Let me say one final thing with respect to the question of Marbury versus Madison and our argument seeming in contradiction with it.
Marbury versus Madison, of course, holds that the Congress cannot add to the Court's original jurisdiction, and, indeed, an argument could be made that, therefore, invoking the Declaratory Judgment Act here would be adding to the jurisdiction of this Court in some sense.
We would not make that argument.
And, in the same vein, we would not hear say that the anti-injunction action, statute, takes away from the Court's jurisdiction.
It simply instructs all courts of the United States when they may hear a controversy, not what controversies they may hear.
And, it cannot be different, whether the rule is that it is too late to hear it, as in the case of the statute of limitations, or too soon to hear it.
Unidentified Justice: Mr. Claiborne, how could the Court ever hear on appeal a case to which South Carolina was a party in connection with this task if we can't hear it here?
Louis F. Claiborne: There could be no such case in which South Carolina was plaintiff, but that is often true.
The reason South Carolina--
Unidentified Justice: Well, you are then saying that South Carolina could never have an adjudication in this Court at its instance.
Louis F. Claiborne: --Well, with respect to this particular issue, I think that is so.
South Carolina, of course, need not sit and tarry on the sidelines when the taxpayer files his refund suit.
Unidentified Justice: If the taxpayer ever does.
As a taxpayer he is going to be getting higher interest rates, what has he got at stake?
Louis F. Claiborne: Well, he would just as soon pocket all that higher interest rate rather than pay half of it to the Treasury.
Unidentified Justice: Well, I know, but he has to hire a lawyer and he is not getting any less out of his bonds than he ever did.
Only South Carolina is getting less out of its bonds.
Louis F. Claiborne: Well, it may be, and this is precisely the argument that Justice Blackmun made in Americans United, that such a suit might never come about because the organization, among other things, might change its activity or because the contributor wouldn't find it worthwhile hiring a lawyer and going through the cost and delays of filing a suit to which the Court said that is no reason to break the rule of the anti-injunction statute.
Unidentified Justice: Well, the state is a party here.
That wasn't involved in the Bob Jones case.
Louis F. Claiborne: I appreciate that the state has a claim and that the state is different from an ordinary party.
Of course, with respect to ordinary taxpayers, it must happen every day; that people who would engage in a certain commercial transaction, if they were assured of the tax consequences, but not being able to obtain a declaration from a court in advance and not being able to obtain a favorable revenue ruling, simply demur and do not engage in that transaction and the matter is never tested judicially.
That is no reason to allow an advance declaratory or injunctive action.
And, it seems to us, the same reasoning must apply in this case.
After all, the original jurisdiction of this Court was afforded to states in order to available them of a forum which was thought equal to their sovereign dignity.
But, it was not a forum that was meant to be more open or more hospitable than the other forum equally available to the states.
Unidentified Justice: Is there now a withholding on interest on bonds issued by private issuers?
Louis F. Claiborne: My impression is that that statute was repealed and is not presently the law.
Unidentified Justice: So that South Carolina, if it... would be under no obligation now to file any withholding statements or to report to the government how much interest it was paying to people?
Louis F. Claiborne: I think not.
One final thing on that score.
The most recent amicus brief filed, and I am not confident whether the Court has granted leave to file it, but suggests that the alternative to this statute is a requirement that the issuer's paying agent report to whom the bearer bonds have been delivered, keep records of any payments of interest and thereby furnish a trail for the federal Revenue officers to satisfy themselves that there has been no attempted avoidance or evasion of tax.
I am frankly baffled about what is different about conceding that those requirements would be proper and challenging this more straightforward requirement that the bonds be issued in registered form as an issue.
We submit that the Court ought not grant leave to file because, as a matter of the anti-injunction statute applicable here as elsewhere, the Court cannot entertain the suit.
It should not--
Unidentified Justice: Mr. Claiborne--
Louis F. Claiborne: --I am sorry.
Unidentified Justice: --Finish your sentence.
Louis F. Claiborne: But that if the merits are appropriately reached, they are sufficiently clear that the suit should be dismissed at this stage.
Unidentified Justice: Mr. Claiborne, I just wanted to go back for a moment to the Allen case again and be sure I understand your submission, because as I glance again at the opinion, the Court did, in that case, rely to some extent on the fact that you... a state had interest involved, the University of Georgia, the Board of Regents of the University of Georgia was speaking on behalf of the state, and to the extent that you rely on Bob Jones as in effect repudiating the rationale of that case, it really couldn't repudiate that aspect of the case.
So, maybe it at least survived when the person seeking to bring the litigation is the state as opposed to a private university or something like that.
Louis F. Claiborne: Well, I perhaps missed the passage Your Honor refers to in the Allen case.
I had not appreciated that the Court felt that because it was state rather than an ordinary taxpayer the anti-injunction statute prohibition ought to be relaxed.
Unidentified Justice: That was the fact though in the case.
Louis F. Claiborne: It was indeed.
Unidentified Justice: And, I may read too much into it.
It isn't as clear as it might be.
I am not suggesting you misread it.
But, that is really your response to the case, to that case is almost exclusively that Bob Jones has undermined it?
Louis F. Claiborne: Well, that case was wrongly decided as Bob Jones indicates.
Unidentified Justice: The reasoning of Allen is totally inconsistent with the reasoning of Bob Jones, isn't it?
Louis F. Claiborne: Well, exactly so, Justice Rehnquist.
I cannot reconcile them and I don't think this Court attempted to do so in Simon.
But, the Court clearly repudiated the case on which Allen is in turn relying and mentioned Allen as simply following in that erroneous view.
And, while the case is not in terms overruled, I take it its holdings have been effectively eroded I submit.
Chief Justice Warren E. Burger: Do you have anything further?
REBUTTAL ARGUMENT OF HUGER SINKLER, ESQ. ON BEHALF OF THE PLAINTIFF
Huger Sinkler: Mr. Chief Justice, if it please the Court:
I would like to suggest to the Court the consequences of permitting the national government to inject itself into the issuance of state bonds.
I am talking about state bonds issued for state purposes.
I am not talking about industrial revenue or those type of bonds.
If the Congress can tell South Carolina it has got to issue revenue bonds, then it can tell South Carolina that it can only issue bonds of a certain kind or if it issues those bonds, it must issue a different kind of bond.
You are really going to move the seat of government from the local capitals to Washington, because if you just look at the Internal Revenue Act, Section 103 was about two lines until they started this sort of esoteric type of borrowing.
You now find 15 pages and hundreds of pages of regulations.
That is what you are going to have if you once let the camel put his nose under the tent and tell states when they should or should not issue bonds or how they should issue bonds.
I am talking about state bonds for state public purposes, Your Honors.
Unidentified Justice: Mr. Sinkler, may I ask... I don't think you have suggested a response to the government's argument.
The Tax Injunction Act bars this Court's jurisdiction of this suit.
Huger Sinkler: Excuse me, sir?
Unidentified Justice: I don't think you have addressed the government's argument, have you, that the Tax Injunction Act bars this Court's jurisdiction of this suit?
Huger Sinkler: Well, in the first place, Your Honor, I think that this case involves something a great deal more than a tax.
This is referred to in the joint committee reports as a sanction, not a tax, this provision.
But, this is a matter where this Court should take jurisdiction, because this case really involves the right of the national government to impose its will upon the governments of the states.
It is a fundamental question.
Also, he has boldly announced... I didn't think he was going to boldly announced, I thought he would try to get away from it... that the 16th Amendment prevents federal government to tax state bonds which overrules certainly the dicta of this Court for 60 years.
Now, Mr. Sinkler, if we do grant your motion for leave to file, should we appoint a special master?
Not at all, sir.
The facts are here, the facts are here.
The basic question is intrusion.
Unidentified Justice: Well, what if we agree with you?
What should we do at this juncture?
We haven't granted leave to file yet.
Huger Sinkler: I think you ought to let us file our motion.
Unidentified Justice: Then what?
Huger Sinkler: And fight for the briefs and further argument I would assume.
Unidentified Justice: You mean you have some arguments on the merits you haven't presented now?
Huger Sinkler: I think there are a considerable number of arguments.
I think this Court would find itself interested in the history of the whole problem, because case really goes--
Unidentified Justice: But, if you are going to do that, why wouldn't you want the opportunity to support some of your factual obligations about the burdens on the state and maybe the federal government would want to--
Huger Sinkler: --I would have no objection to that.
Unidentified Justice: --have testimony with respect to what kind of a basis there is for requiring registered bonds.
Huger Sinkler: We certainly would have no objection to it, Your Honor.
There happens to be about a half trillion dollars of coupon bonds outstanding now that are not covered by this thing.
Unidentified Justice: Yes.
Huger Sinkler: So that the result the government seeks is not going to come about probably for a great many years.
Unidentified Justice: Mr. Sinkler, you have asked for a preliminary injunction, I thought.
Huger Sinkler: I was denied that, Your Honor.
Unidentified Justice: So that is out of the case?
Huger Sinkler: I was denied that.
I didn't know anything about appealing.
Unidentified Justice: You can renew the motion right now, I suppose.
You will take it with or without a master, right?
If we take jurisdiction, you don't care whether there is a master or not?
Huger Sinkler: That is right, sir.
Chief Justice Warren E. Burger: Thank you, counsel.
The case is submitted.
We will hear arguments next in Russello against the United States.