Transcript

IN THE SUPREME COURT OF THE UNITED STATES

AMERICAN TRUCKING ASSOCIATIONS, INC., ET AL., Appellants, v. JAMES I. SCHEINER, SECRETARY, DEPARTMENT OF REVENUE, ET AL.

No. 86-357

April 28, 1987

The above-entitled matter came on for oral argument before the Supreme Court of The United States at 10:04 o'clock a.m.

APPEARANCES:

STEPHEN M. SHAPIRO, ESQ., Washington, D.C.; on behalf of the appellants.

SUELLEN M. WOLFE, ESQ., Chief Deputy Attorney General of Pennsylvania, Harrisburg, Pennsylvania.

PROCEEDINGS

CHIEF JUSTICE REHNQUIST: We will hear argument first this morning in No. 86-357, American Trucking Associations versus James I. Scheiner.

Mr. Shapiro, you may proceed whenever you are ready.

ORAL ARGUMENT BY STEPHEN M. SHAPIRO, ESQ., ON BEHALF OF THE APPELLANTS

MR. SHAPIRO: Thank you, Mr. Chief Justice, and may it please the Court, this appeal brings before the Court two taxes, the axle tax and the marker fee which are imposed by the State of Pennsylvania on trucks that travel over its highways. Appellants challenge both of these taxes under the commerce clause as discriminatory against truckers who engage in interstate operations.

I should make clear at the outset that we do not question the amount of revenues that Pennsylvania seeks to raise by these taxes. We strongly support the right of every state to raise the funds which it needs to keep its highways safe and unobstructed. Our objection to these taxes goes only to their discriminatory character and to the penalty which they impose on those who choose to participate in interstate commerce.

I would like to begin today with a discussion of our flat tax challenge which relates to both the marker fee and the axle tax. The marker fee charged a flat sum of $25 per truck. The axle tax charges $36 per axle. That is $180 for almost every truck that travels in interstate commerce.

Under the axle tax a truck that travels a few thousand miles in Pennsylvania pays the same amount as a truck that travels ten, twenty, or fifty times as much. Truckers from other states who are light users of Pennsylvania's highways end up paying the same amount as local truckers who use the highways on a regular basis.

The result is a cost per mile that is much higher on the average for the out-of-state trucker than for the in-state trucker, and that, as this Court has pointed out on several occasions, is the inherent discriminatory effect of a flat tax which favors local users and disfavors users from other states whose business requires them to move across the country in interstate commerce.

QUESTION: Mr. Shapiro, how do you know that per mile is the proper apportionment? I mean, maybe it should be per ton of traffic or per ton mile or -- there are lot of different -- per hours on the roads of Pennsylvania. There are a lot of different --

MR. SHAPIRO: That is correct.

QUESTION: -- apportionments you could come to, aren't there?

MR. SHAPIRO: That is correct, Your Honor. The Court's recent opinions have made clear that the measure of the tax has to be geared in some respect to the extent of the taxpayer's in-state presence and activity. Ordinarily when we are discussing usage of the highway that would be mileage but it may be mileage along with weight or other factors. There is no single way that --

QUESTION: There is no single one. It could be hours on the road.

MR. SHAPIRO: It could be hours on the road. That's correct.

QUESTION: Is that any different from the discrimination that exists with respect to the citizens of Pennsylvania themselves? I presume that every Pennsylvania citizen who purchases a car and registers it in the state pays a flat registration fee which isn't dependent on how much he uses the car. It is the same type of discrimination there, isn't it?

MR. SHAPIRO: There are many flat taxes that do not discriminate against interstate commerce at all. The Nippert problem arises --

QUESTION: But you call that discrimination anyway.

MR. SHAPIRO: But is isn't necessarily commerce clause discrimination unless the out-of-state taxpayer is burdened in a way that the in-state taxpayer is not. The Nippert problem arises --

QUESTION: One wouldn't normally apply the term discrimination to that, would one?

MR. SHAPIRO: Well, this Court did, of course, in Nippert, and I would like to make clear what the Nippert problem is. When a taxpayer moves in interstate commerce from state to state and can only spend a limited amount of time in any particular state, that is where this problem is at its most acute.

In order to get the full benefit of the flat tax that the local taxpayer gets he'd have to give up the interstate business. Inherently he is spending 2 percent or 5 percent of his time in each state around the country, and when he faces a large, unapportioned flat tax in state after state after state, that is what produces the difficulty for the interstate carrier.

As I have suggested to Justice Scalia, the real problem here is the problem of cumulative burdens which the trucker faces when he passes from state to state and he gets hit by flat taxes again and again. We now have these flat taxes in seven different states, and additional states are now considering them. This means that the cost of engaging in a multi-state trucking business gets higher and higher the more the taxpayer attempts to participate in our national common market economy.

QUESTION: Mr. Shaprio, Congress is taking a look at this problem, isn't it?

MR. SHAPIRO: Congress is taking a look only at the administrative facets of state taxation of highways. It is not looking at the substance of the taxes, the discriminatory content of the taxes, and we think that is the significant --

QUESTION: It just seems to me that this Court in rather a long line of cases has basically approved this flat tax method --

MR. SHAPIRO: There is no question that the Aero Mayflower --

QUESTION: -- and there may be quite a reliance interest now of the states on that system, and maybe it isn't the best, but do you think we have to recognize the precedents?

MR. SHAPIRO: Well, I think the precedents are the heart of this, and I would like to address them in some detail. We say that these precedents have been out of step with this Court's recent decision ever since the Complete Auto Decision and ever since Commonwealth Edison. For a substantial period of time now the measure of the taxes had to be related to the extent of the taxpayer's in-state presence and activity, so the law changed, we say, with the watershed decision in Complete Auto and in Commonwealth Edison.

QUESTION: Well, but the case of Massachusetts against the United States, I think, cited those precedents again with approval even after Complete Auto.

MR. SHAPIRO: There is no question that the cases have continued to be cited. In the Massachusetts case we were talking about a tax by the United States, a single sovereign.

There was no problem of cumulative burdens there, and every taxpayer had a voice in the councils of the Federal Government, and this Court placed great emphasis on that. Now, the out-of-state drivers don't have any voice in the Pennsylvania legislature when this discriminatory legislation is imposed, and I think if the Court focuses on the economic realities of these cumulative burdens it will be clear that the more modern approach under this Court's decisions is the applicable approach.

QUESTION: Isn't there quite an administrative burden for the states to try to collect a tax on some basis that actually reflects the weight of the vehicle and the miles traveled? That is kind of hard to do, isn't it?

MR. SHAPIRO: That is a critical issue, and I think it is important to recognize that every state in the United States has mileage based taxes today. Seventy or 80 percent of all highway taxes in every state are raised by this mileage based system, including Pennsylvania, and so to say that the system is not in place to collect more money in a nondiscriminatory way is just wrong.

Pennsylvania's brief concedes this point, that most of their taxes are raised by their fuel taxes, registration fees, apportioned income tax, so there really is no administrative convenience argument left which favors this flat tax approach.

QUESTION: Well, I am not sure that is right, Mr. Shapiro. The kind of mileage based taxes you refer to, fuel tax and that sort of a thing, are really kind of self-regulating, but here what you would have Pennsylvania do is to somehow by voluntary declaration, I guess, find out the number of miles each truck travels in Pennsylvania.

MR. SHAPIRO: Well, Your Honor, our submission is that the nondiscriminatory taxes such as the fuel taxes, they are already in place. The collection systems are operating. The enforcement mechanism is there. They simply need to be raised. We have advocated raises in the fuel taxes in several states.

QUESTION: Well, but that doesn't rise to the level of a constitutional principle to just say it would be better if Pennsylvania did it the way we want it to.

MR. SHAPIRO: In the Nippert case this Court pointed out if there are less discriminatory alternatives available to the state that is of critical importance in deciding whether the discrimination can be countenanced under the Constitution. Now, here we have every state in the country using these nondiscriminatory alternatives.

There are only a handful of states that have relied on the flat taxes. Pennsylvania itself raises most of its taxes through nondiscriminatory taxes. There simply is no need to raise money by a discriminatory tax, and I think the Court will appreciate the importance of this if you consider one example that demonstrates the economic impact of these flat taxes.

If every state in the country had a flat tax just like the Pennsylvania axle tax, that would mean a trucker with a local business in Pennsylvania would pay a maximum of $180 in this flat tax, but if a trucker spread the same number of total miles over a 48-state basis it would cost that trucker $9,000. That is the penalty for engaging in interstate commerce. That is the cost which is attached to letting your business participate in the national common market economy.

Now, if you have a fleet of trucks, a thousand trucks, the penalty is $9 million. These are enormous penalties for engaging in interstate commerce.

QUESTION: Mr. Shapiro, if we could back up a minute, you said how fair school taxes were. Do you know that some states have school taxes that are picked up by head tax? How can you say that is fair?

MR. SHAPIRO: Well, there are many taxes such as head taxes or the --

QUESTION: I am not saying it is crucial, but I mean you have to consider it.

MR. SHAPIRO: That is correct, Your Honor. There are many different formulas for raising these taxes, and in the lion's share of the cases they don't discriminate against interstate commerce, which is the particular --

QUESTION: No, not at all.

MR. SHAPIRO: -- problem here that we are concerned with. I think it is an important constitutional problem because these cumulative burdens penalize those who choose to carry goods across state borders. And they discourage the operation of a nationwide trucking business. They discourage the operation of trucking services that cross over state borders. They are a direct penalty for choosing to engage in interstate commerce.

QUESTION: Is there some empirical support for the proposition you just state, or is that just pretty much speculation?

MR. SHAPIRO: It is virtually definitional by these taxes.

QUESTION: I mean, is there empirical support for it?

MR. SHAPIRO: For the greater cost, yes. It is in the record in this case. The cost per mile is five times as high for the out-of-state --

QUESTION: No, I mean empirical support for the proposition that the sort of system Pennsylvania has discourages out-of-state trucks. I mean, have there been surveys?

MR. SHAPIRO: Well, this Court reached that very conclusion in the Nippert case.

QUESTION: Well, I am asking about whether there has been empirical evidence saying that there are fewer trucks coming into Pennsylvania because of the kind of tax system it has.

MR. SHAPIRO: To my knowledge, Your Honor, other than what we have submitted in the record, there is not a study of this problem. We would like to emphasize before turning in greater detail to these flat tax cases that Justice O'Connor has referred to what we believe the governing commerce clause standard is in a case like this.

We begin with the Complete Auto Decision, which teaches that judicial review today must focus on the practical economic effect of these statutes and not on the labels which are attached to them, and the Court made clear in Complete Auto that a tax that falls on interstate commerce must be nondiscriminatory in its practical operation and it must be fairly related to the services which are provided by the state.

Now, in the Nippert case this Court explained the discriminatory practical impact of a flat tax when it invalidated a flat tax that fell on traveling salesmen. The Court explained, and I quote, "The very difference between interstate and local trade taken in conjunction with the inherent character of the tax makes equality of application of the tax to these two classes of commerce impossible."

The Court emphasized that this discrimination is not just a matter of looking at one single state in isolation, but there are cumulative burdens as these large flat taxes are laid in succession on persons across the country to conduct their business.

The Court has pointed out in Armco and in other recent cases that the tax must not impose unacceptable discrimination if every state in the United States were to adopt that tax, and we think that the constitutional infirmity here is evident when you project these flat taxes onto a 50-state basis and you ask what would happen if every state had an axle tax and it cost $9,000 to conduct the same business on a multistate basis than it would cost if you confined your operations to a single state.

Now, in Commonwealth Edison, this Court also explained that under the modern, pragmatic approach to commerce clause issues, a tax won't pass muster unless its measure is fairly related to the services provided by the state. The formula for measuring the tax has to be geared to the in-state presence and activity of the taxpayer.

Now, in this case, it is undisputed that the measure of the tax is not related to the taxpayer's presence or activities in Pennsylvania. The very purpose of this tax is to raise money for highway maintenance and highway upkeep, yet the local trucker who travels 100,000 miles on the highway pays the same thing as an out-of-state trucker who comes in and puts in two or three or four thousand miles on the highway, even though the local trucker may be causing 50 times as much wear on the highway system.

QUESTION: Again, the same thing happens with regard to intrastate residents, and we don't -- nobody considers that so discriminatory that it isn't the standard system in all the 50 states as far as I know.

MR. SHAPIRO: Those problems, of course, are not commerce clause problems. If the out-of-state interstate carrier is disadvantaged, that is the commerce clause concern.

QUESTION: I understand, but the argument you are making is not just that discrimination, which has an invidious overtone, against commerce is bad, but you are saying any absence of equality on the part of interstate commerce is bad.

MR. SHAPIRO: We do say if there is a practical economic effect of discriminating, that that is as bad as the bad purpose. Now, the Court has said that on many occasions, most recently in the Bacchus case, and these discriminatory effects, I think it is important to point out, have not been overlooked by the other states which now retaliate against flat taxes.

We have eight states already which retaliate against the axle tax, and in a special report that we have lodged with the Court, the Pennsylvania Legislature has made a study of the effect of that retaliation, and it has found that the retaliation is "devastating to the state's motor carrier industry." This is the real world interstate impact of the axle tax. It is producing a virtual trade war among the states, and one that is very injurious to interstate trucking activity.

Now, despite all these discriminatory effects reliance is placed on the Aero Mayflower line of cases referred to by Justice O'Connor, and I would like to spend a few minutes talking about them because they are quite important. The principal rationale in Aero Mayflower was that a flat tax is reasonable because it pays for the "privilege" of highway use. The Court reasoned that it wasn't the state's fault if the driver didn't make full use of that privilege after paying for it. This, we say, is the kind of reliance on abstractions rather than dollars and cents effects which Complete Auto has put behind us.

The privilege rationale ignores the fact that a truck can't be in more than one state at one time. So an interstate trucker who is forced to pay a substantial unapportioned flat tax in state after state for a privilege he can use only occasionally in any particular state is placed at a serious competitive disadvantage. The only way to get the full benefit of the privilege, in other words, is t give up the interstate business and become a local operator who can drive 50, 60, or 70,000 miles on the highway.

No, the other point that was relied on in Aero Mayflower was administrative convenience that the Court has referred to in the argument, and I think it is important to bear in mind that almost all of the highway taxes today are raised by nondiscriminatory means. The state can simply rely more substantially on existing nondiscriminatory taxes which are already in place.

QUESTION: What are you talking about, gasoline, fuel taxes?

MR. SHAPIRO: Fuel purchase, fuel use taxes, the gross receipts tax, which is mileage-based in Pennsylvania, the apportioned registration fee. All of these are mileage-geared taxes not only in effect in Pennsylvania but in every other state in the country, so we say that the discrimination that is inherent in the flat taxes can't logically be justified today by reference to administrative convenience.

The existing nondiscriminatory taxes can simply be raised, as they regularly are, in states across the country.

QUESTION: What is the competitive disadvantage to your interstate truckers?

MR. SHAPIRO: They pay a very substantially higher cost per mile in any --

QUESTION: That is different. Whom are they competing with?

MR. SHAPIRO: They are competing with local business for local carriage of commerce.

QUESTION: So you are really talking about people from out-of-state who are making deliveries in Pennsylvania?

MR. SHAPIRO: Well, there is that discriminatory effect. There is a second and more important one, and that is, there is a discrimination against those who wish to engage in a 50-state commercial activity.

QUESTION: Well, I know, but what about a class of trucks, that all they do on Pennsylvania highways is go through the state? They make no local deliveries. Is that -- is there discrimination against them?

MR. SHAPIRO: Well, there is competition from the out-of-staters for that local business of picking up and dropping off.

QUESTION: What local business? That isn't what I said. What about -- the only use of Pennsylvania highways that these trucks make is, they go through the state, from one end to the other or from one side to the other. They don't stop in Pennsylvania except to buy gas.

MR. SHAPIRO: Well, they are not competing for the local carriage. That is true.

QUESTION: Well, they aren't being discriminated against, in short.

MR. SHAPIRO: Well, they are being discriminated in the sense that the flat tax regime makes it prohibitively expensive to engage in this 50-state operation compared to the local operation.

QUESTION: Well, that is -- do you think that is a commerce clause question?

MR. SHAPIRO: Oh, we certainly do.

QUESTION: Well, there is no discrimination.

MR. SHAPIRO: There is a penalty for engaging in interstate operations. It vulcanizes the trucking industry. It creates pressure to operate on a local scale. That is the principal commerce cause objection.

QUESTION: I don't understand that. I don't understand that. If somebody wants to deliver some goods from Iowa to New York City and goes through Pennsylvania?

MR. SHAPIRO: The Court has to view this as a situation where states across the country have flat taxes. Now, if a trucker is asked to pick up the goods on the east coast and take them to the west, if he has to pay flat tax in state after state, even though he is making light use of the highways in each state, that is going to discourage interstate operation categorically. It is going to put pressure on truckers to organize their services on a local or a regional basis, and we say that is a core commerce clause concern.

QUESTION: So you say in effect that there isn't going to be any interstate business of trucking stuff from New York to San Francisco, that it is all going to be transshipped at each state border if your view doesn't prevail?

MR. SHAPIRO: That is the vulcanizing effect. We don't know that these consequences, of course, are going to occur that starkly, but that is the economic tendency of making it far more expensive to operate a business that spills over state lines.

QUESTION: Truckers would rather pay this axle tax than do that, I think.

MR. SHAPIRO: Well, the axle tax is being replicated --

QUESTION: Questions like that are kind of out of our reach, aren't they?

MR. SHAPIRO: Well, the Court has said that even small amounts of discrimination are not acceptable under the commerce clause. There was an $8,000 discrimination in the Westinghouse case which invalidated the tax. Here we are talking about a much more substantial dollar amount, is our submission.

QUESTION: But, Mr. Shapiro, insofar as you attack the marker tax or marker fee, you attack the $25 fee, but I don't think you attack the $5 fee, do you?

MR. SHAPIRO: We don't attack the $5 fee. That illustrates my observation earlier that not every flat tax has a discriminatory effect on interstate commerce. There are some flat taxes that simply cover the cost of providing a particular service to you. Everybody pays the same thing. Everybody receives the same thing. Five dollars for your decal. That is the cost of giving you the decal. Or $10 for towing.

We don't object to that kind of tax. We object to the revenue-raising tax which is laid for the privilege of doing business where the interstate operator gets much less use than the in-state operator for the payment of $180 or $25, but we don't challenge flat taxes categorically, and I think that is an important concept.

Now, the last point that was relied on in the Aero Mayflower case was the Court's belief that flat taxes don't create a substantial burden on anybody, and this, as I have been driving at earlier, is simply not a tenable rationale today.

In contrast to the days of Aero Mayflower, the trucking industry today is made up of truckers, many of whom engage in business in all 48 states. These trucks are facing a rising tide of flat taxes across the country. We are talking about smaller companies and we are also talking about larger companies that may have several thousand trucks in their fleet, each of which has to be qualified in every state in the union in order to bring goods from the east coast to the west coast or from the north to the south, and we say that these accumulating burdens are very far from insubstantial or minimal.

These burdens, we say, are also in no sense counterbalanced or justified by the registration fee which Pennsylvania charges to its own trucker. The argument has been made that a large registration fee is imposed on local truckers. The fact is that Pennsylvania's registration fee is just at the median in the United States today. The average was $910 at the beginning of this year. Their fee is $945.

The range is from $36 up to $2,200 in my home state of Illinois, so there is nothing unusual about their registration fee, and in addition to that it is a nondiscriminatory system. Everybody gets treated fairly under the registration system. Everybody gets the benefit of apportionment. Everybody gets the benefit of reciprocity when they travel over other reciprocity states. Trucker in each state get the benefit of the nondiscriminatory nationwide registration system, including truckers in the state of Pennsylvania.

Now, we submit, in short, that the practical approach to commerce clause issues which has been taken by this Court in its most recent decisions teaches that Aero Mayflower can no longer be invoked to defend flat taxes which impose these cumulative burdens on commerce which fall to satisfy the internal consistency principle when you consider these taxes on a 48-state basis --

QUESTION: Well, Mr. Shapiro, I assume that some states have collected millions of dollars of flat tax fees. If you are right, are they supposed to refund all that money?

MR. SHAPIRO: Well, I don't speak generally to that issue, but in this case we have stipulations for a refund from the state that has dealt with that. We moved for -- we were prepared to move for an escrow, and the state said, no, there is no need to go for an escrow here, we can stipulate to a refund in the event that this is declared unconstitutional.

QUESTION: I would assume there is a pretty heavy reliance interest by states on this Aero Mayflower line.

MR. SHAPIRO: Well, this litigation, Justice O'Connor, was commenced immediately after the effective date of these taxes. It is as if these funds have been place in limbo pending the outcome of this litigation, and we think it would be very destructive to the policies of the commerce clause to permit those that have been discriminated against and injured by these exactions to go uncompensated, and the state agreed with us because they stipulated to a refund of these sums, and I think that that takes care of the refund issue in this case.

Now, of course, we have a second commerce clause challenge in this case which relates to the facial or the structural discrimination issue, and that, of course, is focused in solely on the axle tax. The essence of this contention is that this statute discriminated on its face.

Section 3 of the statute imposed the new tax. Section 1 of the statute granted an offsetting reduction for local business. We say that this is squarely within the holding of Maryland versus Louisiana, where a general tax was imposed on commerce, offsetting reductions were given to local business.

We are met in defense of the statute with the argument that even though there is no compensatory tax doctrine defense here, that the whole arrangement should be defended and accepted because it constitutes a rational restructuring of tax burdens.

Now, the important thing, I think, to bear in mind about this rational restructuring argument is that there isn't a scintilla of evidence that anyone was engaged in a rational restructuring of tax burdens. The statute says on its face that its purpose was to rehabilitate bridges and give jobs to local residents. There isn't a single word said about adjusting or rearranging tax burdens to come up with an equitable solution that wouldn't discriminate against interstate commerce.

The Court is being asked to accept a new doctrine, an unstructured doctrine, this rational readjustment doctrine, with absolutely no basis in the statute or its history to suggest that that was what was going on. Now, if the Court please, I would like to rest on our briefs which deal with the facial discrimination issue in greater detail and reserve the balance of our time for rebuttal.

CHIEF JUSTICE REHNQUIST: Thank you, Mr. Shapiro.

We will hear now from you, Ms. Wolfe.

ORAL ARGUMENT BY SUELLEN M. WOLFE, ESQ., ON BEHALF OF THE APPELLEES

MS. WOLFE: Mr. Chief Justice, and may it please the Court, there are two reasons why Pennsylvania's axle tax is constitutional.

First of all, flat user fees have formed a vital part of the tax schemes of all the states. They are easy to administer and fair in their application. So long as they are reasonably related to the services rendered by the state, they have been considered constitutional. The constitutionality of these taxes has been upheld for almost 100 years. And the appellants have just pointed out that they do not contest that Pennsylvania's axle tax is excessive.

The second reason is that the appellants stress the fact that when Pennsylvania enacted its axle tax it reduced registration fees in an equivalent amount. However, what they don't stress is that in 1980 Pennsylvania had raised its registration fees in the same amount. That means the only effect of the 1982 drop in registration fees was to restore Pennsylvania's tax scheme to its status quo before imposing an axle tax on all trucks using Pennsylvania's highways.

The appellants request this Court to invalidate flat fees. There is no way to assess a particular user of a user system such as a highway system with his particular portion of the cost. That is because the costs are generated by so many factors. In a highway system it can be generated by weight, by mileage, and by configuration.

QUESTION: I suppose you could at some cost set up weighing stations at the border of the state where you come in from, say, between Binghamton and Scranton coming down, what, 81, is it, and then if you are driving all the way through coming out south of Gettysburg, and just ask the driver for a declaration of how many miles in the state, or maybe check odometers.

QUESTION: That is a possibility, Your Honor, but you must understand that that requires of the state a great administrative cost, and if you would do that there -- you are requesting the state to rely on one factor in a system where the costs are generated by many factors.

If in fact the Court would accept the proposition that a user fee is by its nature discriminatory and unconstitutional, it is no exaggeration to say that it would create chaos in all of the 50 states. These states use these types of fees because they have found that they are administratively convenient, they are fair in their application, and --

QUESTION: Are there more than seven states using the flat tax --

MS. WOLFE: For highway systems?

QUESTION: -- system on highways?

MS. WOLFE: I believe at this point there are only seven states that are imposing a flat fee, and you have to understand Pennsylvania's situation to also understand why we decided to enact the axle tax. Pennsylvania has very hilly terrain, has very heavy truck traffic, and has very difficult weather and climate conditions. In addition, our bridges are in dire need of repair.

QUESTION: Why are your weather conditions any more difficult than a lot of other states?

MS. WOLFE: The weather conditions are very cold as compared to the southern part of the nation, which causes stress --

QUESTION: Well, but there are a lot of northern states that don't do what Pennsylvania does.

MS. WOLFE: I am saying, Your Honor, that it is a combination of factors, that Pennsylvania has a unique situation. The weather in combination with the terrain, the heavy truck traffic has generated great damage to the highways.

QUESTION: Does New York do what Pennsylvania does?

MS. WOLFE: I am not aware of the fact whether New York imposes a flat tax.

QUESTION: (Inaudible.)

MS. WOLFE: Yes, absolutely, and they also have a very --

QUESTION: And they have a slight bridge problem, too.

MS. WOLFE: They have a very -- I believe the Wall Street Journal indicated that Pennsylvania and New York have the most severe situation so far as the condition and the damage of their bridges.

QUESTION: Of course, I suspect the most important of those factors you mention is that Pennsylvania has a lot of truck traffic.

MS. WOLFE: Absolutely.

QUESTION: Most of which is interstate and easily taxable. Wasn't the Pennsylvania Throughway the first Throughway that was built in the country?

MS. WOLFE: We had the first turnpike. Yes, Your Honor.

QUESTION: The first turnpike.

MS. WOLFE: Yes.

QUESTION: Feels like it, anyway.

(General laughter.)

MS. WOLFE: The appellants go on to suggest that the mileage-related fuel tax is the talisman to these flat taxes. But as I indicated before, the administrative ease that the appellants contend is possible today is not in existence in Pennsylvania. New York has imposed a system and it is in the record that it created tremendous cost. And quite simply Pennsylvania as a self-reporting system now. Self-reporting systems don't work. That is why we have withholding in personal Income tax. In order to --

QUESTION: You say Pennsylvania has a self-reporting system. Did you mean New York has a self-reporting system?

MS. WOLFE: No, for the mileage taxes.

QUESTION: Pennsylvania does?

MS. WOLFE: Yes. In other words, we have to take the truckers' words for the amount of mileages that they travel in the state, and we do that. It is an honor system. But it doesn't work. If in fact we went to a completely mileage-based system, that would impose upon the state a tremendous administrative burden. We would have to have an audit function in place.

There is also a need for a control factor in these state schemes. The bridges and the highways have got to be there for the convenience of the user, the trucks. Whether those trucks use it one time or 600 times, they want that particular bridge or that particular highway there in good condition when they want to use it.

I will now revert back to the other issue, and that is the discrimination, and I believe it is a fairly--

QUESTION: Before you do that, I want to be sure I understand your argument about the difficulty of using an audit or whatever it is, but is it not correct that 43 states do have this kind of mileage tax and only seven have the flat tax?

MS. WOLFE: I'm not -- most states have a mileage-based tax, but I believe they have those taxes in combination with other taxes. I don't believe they rely solely --

QUESTION: Even if they have others as well, apparently they are able to administer a mileage tax.

MS. WOLFE: Well, they administer it -- apparently they do, but I am saying Pennsylvania probably isn't comparable. We have huge numbers involved here, and our numbers are, for instance, I would say, $1 billion a year that we have to generate, and I am saying that we don't have the facilities to audit those types of numbers at the present time. I am not sure whether those states that have the 43 mileage, and we have a mileage system, too, in our fuel taxes.

QUESTION: The Chief Justice asked you about weight. Do truckers have to stop at weighing-stations as they enter and leave the state?

QUESTION: NO, Pennsylvania has a maximum weight, and we have weigh stations along certain highways where on occasion they have to pull over, but there is nothing at the entrance of the state and when they leave the state to actually weigh a truck, and that goes to show you administrative inconvenience also. If in fact we went to a pure weight system, the truckers would be the first ones to complain that they would have to stop --

QUESTION: I have often wondered about those weigh stations. Do they just weigh and if they are not too heavy they let them go on, or do they keep any kind of record of what the weights were on the trucks?

MS. WOLFE: I imagine they keep records, because --

QUESTION: They do keep a record of every truck that is weighed?

MS. WOLFE: I am not positive, but I presume what they are doing is in fact trying to have support information to ascertain whether their system is fair, because once they see that they are having a lot of heavy vehicles, maybe they should shift away from one type of tax and into another. It is a consideration of the legislature --

QUESTION: In fact, isn't it true that if they are overweight they are arrested?

MS. WOLFE: Yes, they are.

QUESTION: On the spot?

MS. WOLFE: Yes, they are. It is illegal.

QUESTION: Most of those weigh stations that I have seen have always had a "Closed" sign on them.

(General laughter.)

MS. WOLFE: And the truckers are very happy about that, too.

I would like to address just for one moment without delaying on the flat fee argument any more or on this system of the highways of Pennsylvania unless the Court has any additional questions, to address the discrimination issue which the appellants contend exists because of the fact that Pennsylvania lowered the registration fees in the same Act which enacted the axle tax.

At first blush the Pennsylvania Supreme Court admitted it looked to be discriminatory, but as I said before, those two events were essentially unrelated. They are not equivalent taxes. And if we presume, for instance, that we started in 1980, the registration fees as a flat playing field, we increased registration fees in 1980. In 1982, we decreased registration fees and imposed the axle tax. The system is not discriminatory at all. It brought the system back to the pre-1980 level and imposed an axle tax on all trucks using Pennsylvania's highways regardless of whether they were registered in the state --

QUESTION: But was the formula by which they reverted to the 1980 level the same, just the same as the increase had been?

MS. WOLFE: It is very similar. There was just a straight -- from 1980 to 1983 there was a slight increase in the registration fee. In other words, Pennsylvania trucks paid slightly more, and that is illustrated, I believe, in the record.

QUESTION: But the form of the statute was not just a simple reduction to the pre-level. It had this complicated formula with multiples of 36 in it, and so forth.

MS. WOLFE: You are absolutely correct, but basically they shifted the burden to the --

QUESTION: It is just a coincidence that it offsets against the axle tax?

MS. WOLFE: It was a coincidence of timing, I would call it.

QUESTION: Just a coincidence.

MS. WOLFE: Yes.

QUESTION: I guess Justice Nix wasn't really persuaded by that, was he?

MS. WOLFE: No, he was not persuaded by that. I think that Justice Nix refused to look also beyond the two taxes involved to the entire scheme to see that it works equitably.

Despite the appellant's attempt to really mischaracterize this case, there is no discrimination. They really launched upon a constitutional attack by seizing upon the fact that the 1982 Act changed two taxes in Pennsylvania's comprehensive tax scheme. That tax scheme really includes 14 taxes which takes into consideration late mileage and configuration.

In fact, the axle tax is proportional because it gives -- weight-related. It's according to the number of axles that the trucks have. It also gives a rebate for trucks traveling less than 2,000 miles. The two taxes, the axle tax and the registration fees, are entirely unrelated and certainly not equivalent. And so long as this Court looks beyond timing to ultimate effect as it always has, and so long as this Court is willing to reaffirm flat user fees as a viable component of the taxing system of the 50 states of the United States, the challenged taxes will stand.

We urge the Court to affirm the decision of the Court below.

QUESTION: Ms. Wolfe, would you concede that if every state in the United States imposed a substantial flat fee tax for highway use, that the cumulative burden of those taxes could have -- could pose a threat to the free flow of interstate commerce by trucks?

MS. WOLFE: I don't believe that there is a threat. I believe that as the trucks move interstate they are receiving a cumulative benefit, and they have to be asked to pay for that cumulative benefit, and also with regard to a user fee certainly each state's law or user fee must pass its own rigid test according to the Aero Mayflower. It must be reasonably related.

QUESTION: Well, it certainly seems to me that the potential for a severe burden is there, viewed cumulatively, and I am surprised that you can't recognize that.

MS. WOLFE: I recognize the fact that interstate commerce should pay its own way and that they are enjoying the privilege of engaging in business in many states.

QUESTION: You don't think it should bear any relation at all to the extent of the use of the highways --

MS. WOLFE: I am saying that --

QUESTION: -- by the interstate user?

MS. WOLFE: I am saying that I don't foresee a cumulative problem --

QUESTION: Wouldnt' that ultimately be the most fair way to do it? Would you concede that?

MS. WOLFE: I --

QUESTION: That a highway use tax should bear some reasonable relation to the miles traveled and perhaps the weight and configuration of the vehicle.

MS. WOLFE: If such a system would be possible to achieve, that would be the best way probably. We never define what factors are responsible.

QUESTION: You say it is not possible to achieve taxes?

MS. WOLFE: Not at this point. I believe truly that there is no direct evidence that mileage is the right way. There's too many factors, too many variables, and certainly Congress looks at this every year, and has made the same determination, and if they in fact saw the cumulative problem they could easily step in.

And just one more thing I would like to say is, I have not heard anything about the number of revenues that these trucks can raise by interstate commerce. Certainly they are able to generate far greater revenues than just participating in business in one state.

QUESTION: Isn't it true that your other examples of weight and so forth, you say none of them are perfect, mileage isn't perfect and so forth, but none of these other variables such as mileage would suggest that there is any distinction drawn between local truckers and interstate truckers, whereas the system you have used has the unique feature, as I understand it, according to the evidence, at least, of placing a heavier burden on the interstate trucker than it does on the trucker who primarily drives in Pennsylvania, which would not be true of mileage tax, weight tax, or any of these other things.

MS. WOLFE: I don't know if I understand your question. What I am saying is, Pennsylvania's system is proportional. We do take other factors into consideration.

QUESTION: Well, but the flat tax doesn't.

MS. WOLFE: The flat --

QUESTION: The axle tax doesn't.

MS. WOLFE: It does according to weight, yes, according to the axles, which are in proportion to the number of axles you have basically.

QUESTION: Well, yes, but all trucks with five axles pay the same tax even if they do all their business in interstate commerce, and it does -- is it not correct that the burden of the tax falls more heavily on interstate truckers than it does on local truckers?

MS. WOLFE: I will say that we have no direct evidence that has been submitted concerning a cost per mile. And I think it was pointed out in the brief that the evidence as to mileage was objected to and never has been determined by the courts of Pennsylvania in that there were no factual findings.

QUESTION: Yes, but under your theory it doesn't really make any difference. I mean, even if we assume that what they say the facts are are true, you would say, well, that doesn't matter.

MS. WOLFE: That is exactly right. I think that Pennsylvania's overall system does relate factors together to give equality to all trucks using the commonwealth's roads.

CHIEF JUSTICE REHNQUIST: Thank you, Ms. Wolfe.

Mr. Shapiro, you have four minutes remaining.

ORAL ARGUMENT BY STEPHEN M. SHAPIRO, ESQ., ON BEHALF OF THE APPELLANTS - REBUTTAL

MR. SHAPIRO: I just have a few additional comments, Mr. Chief Justice.

Th argument was made by my colleague that the state really can't rely on mileage-based taxes or taxes that are geared to in-state presence and activity. I would refer the Court to Page 10, Footnote 13 of Pennsylvania's brief, which shows that $131 million in highway revenues came from fuel taxes, $80 million came from registration fees which were apportioned based on mileage, another $10 million came from the motor carrier road tax, which is a mileage tax, only $123 million came from the flat tax, the marker fee. This hardly suggests that the revenues needed for highway upkeep can't be raised by nondiscriminatory taxes.

Now, we are not asking for perfection. We are not asking for any system that is related, tied to one factor or another. We ask only that the Court standard that the tax in its measure be related to in-state presence and activity, that that --

QUESTION: Mr. Shapiro, on that argument you really can't argue that easy single interstate trucker is being discriminated against in favor of every single intrastate trucker?

MR. SHAPIRO: Quite to the contrary, we don't contend that. On the average that is so, but some of the biggest victims of this system are the Pennsylvania interstate truckers who get hit not only with flat taxes in seven different states --

QUESTION: Well, that may be so.

MR. SHAPIRO: -- but retaliatory taxes in eight more states.

QUESTION: But your argument is that just because the axle tax isn't mileage-related that it is unconstitutional on its face.

MR. SHAPIRO: We take the position that it is --

QUESTION: And that everybody, even though there are a lot of interstate truckers who won't be discriminated against as respects -- as compared with some intrastate truckers, just aren't discriminated against.

MR. SHAPIRO: That was the holding in Nippert. The very same point --

QUESTION: Yes.

MR. SHAPIRO: -- was observed by the Court in Nippert, and we think it is correct. On the average, there is a much greater impact on the interstate operator who can't be --

QUESTION: Of course, on the structural argument everybody, every interstate trucker is being discriminated against.

MR. SHAPIRO: That is correct. I would also like to comment on the observation that the bridges need to be repaired in this state. Nobody agrees with that more than us. Who gets hurt by defective bridges and highways more than the truckers? They depend for their own safety on the solidity --

QUESTION: Me. Me.

MR. SHAPIRO: And individual drivers, of course, but we suggest that even though these are legitimate state objectives that the constitutional rule which forbids discrimination in raising these funds is so vitally important here, we are talking about instrumentalities of interstate commerce, trucking.

Threee-quarters of the dollar value of the commerce in the United States moves by truck today. And yet we have taxes here that discriminate on their face, discriminate in their actual operation against interstate commerce, and which put pressure on the trucker not to operate on a basis across the state lines.

The comment was made by my colleague that we are talking about a corridor state here. Well, that cuts two ways. The Founding Fathers in the debates on the commerce clause pointed out that no corridor state should be in a position to bleed interstate commerce or to blockade it through discrimination. That is what we say these taxes amount to.

Now, again, in summation, Pennsylvania has argued for a broad economic approach to the issue. We don't disagree with that kind of broad brush economic approach, but we would ask the Court to remember the rest of the states in the union when considering these arguments and to consider the impact of these cumulative burdens that Justice O'Connor mentioned on transportation throughout the United States as opposed to --

CHIEF JUSTICE REHNQUIST: Your time has expired, Mr. Shapiro.

The case is submitted.

(Whereupon, at 10:58 o'clock a.m., the case in the above-entitled matter was submitted.)