D. H. HOLMES CO. v. MCNAMARA
Legal provision: Article 1, Section 8, Paragraph 3: Interstate Commerce Clause
ORAL ARGUMENT OF ANDREW RINKER, JR., ESQUIRE ON BEHALF OF THE APPELLANT
Chief Justice William H. Rehnquist: We will hear arguments next in Number 87-267, D. H. Holmes Company, Limited, against Shirley McNamara, Secretary of Revenue and Taxation of Louisiana.
Mr. Rinker, you may proceed whenever you are ready.
Mr. Rinker: Mr. Chief Justice, and may it please the Court, in this case for the first time since its decision in the Complete Auto Transit versus Brady the Court is faced with a question of whether a state may constitutionally impose a direct use tax on the value of goods while those goods are still in the stream of interstate commerce.
Appellant Holmes is a Louisiana corporation operating department stores in Louisiana and three other states.
During 1979 to 1981, Holmes as a part of its marketing strategy contracting with various designers of catalogues in New York for the design, creation, printing and distribution of its catalogues.
In turn, these catalogue designers contracted with printers in Atlanta, Boston, and Oklahoma City for the addressing, printing, and mailing from their local post offices direct to certain select residents of the states in which Holmes does its retail business.
At no time did Holmes or any of its agents or employees have any contact with, receive or take possession of the catalogues which had been mailed directly from the out of state post offices to selected residents within the State of Louisiana.
Unidentified Justice: How many states did these residents reside in?
Mr. Rinker: They are in the State of Louisiana and three other states located in the Gulf Coast areas.
Unidentified Justice: Three?
Mr. Rinker: Florida, Mississippi, and Alabama.
Unidentified Justice: The facts here only apply to the--
Mr. Rinker: To the 82 percent of the catalogues which actually went into the State of Louisiana.
Unidentified Justice: --And Holmes owned those catalogues, didn't they?
Mr. Rinker: Well, sir, that question is still at issue.
Although the Court below determined that Holmes did own the catalogues at the point at which title to the catalogues was transferred to the particular residents, you will note that in the particular contract as described and was found by the lower courts, we actually contracted for a service, that is, the construction of catalogues and the subsequent sending of those catalogues directly to residents.
At no time did Holmes actually take title because we contracted for the performance of a service rather than for the purchase of particular goods.
Unidentified Justice: Well, what happened to any catalogues that weren't delivered?
Mr. Rinker: If the catalogues weren't delivered to the selected residents in Louisiana, the post office was instructed by the instructions on the catalogue to leave those catalogues with the then current resident, and if they weren't distributed to the then current resident they were distributed or sent back to the home store.
Unidentified Justice: So Holmes got them back.
Mr. Rinker: Holmes ultimately would get the catalogues back that weren't actually distributed.
That's correct, Your Honor.
Unidentified Justice: Even though you suggest they are not taxable?
Mr. Rinker: Those, the ones that Holmes got back, yes, Your Honor, are subject to tax because in that particular situation Holmes then obtained possession and control over those catalogues incident to ownership.
The basis of a use tax--
Unidentified Justice: Do you think that that much should turn on an incident of title?
I mean, Holmes put this whole process in operation where the catalogues were created.
Mr. Rinker: --That's correct, Your Honor, but we have to focus on the purpose and the incidence of a use tax.
A use tax is one which is designed to tax some activity of the taxpayer within the taxing jurisdiction.
In this particular case Holmes performed no activity within the taxing jurisdiction to subject it to tax.
Holmes did not purchase the catalogues within the taxing state.
Clearly the purchase would have taken place in one of the other states, either in New York or where the printers are located.
The use of the catalogues by Holmes in connection with any use by Holmes, none of that use took place within the taxing jurisdiction.
Unidentified Justice: Well, Mr. Harrison, I guess, though, that Holmes caused the distribution in Louisiana of the catalogues for its benefit.
Mr. Rinker: Holmes... the only activity--
Unidentified Justice: So is the taxable activity the causing of distribution of the catalogues for its benefit in the state?
Mr. Rinker: --Basically that's correct.
It's the importing of the catalogues or placing an order which caused the catalogues to ultimately be distributed--
Unidentified Justice: Is that not an activity that can be taxed in the jurisdiction?
Mr. Rinker: --In the court below the only incident of taxation was causing these catalogues to be imported.
There was no evidence of any other activity performed by Holmes in connection with these catalogues.
For example, there was no evidence that Holmes placed--
Unidentified Justice: Is that an insufficient activity for a jurisdiction to impose a tax?
Mr. Rinker: --Yes, it is.
Unidentified Justice: Why?
Mr. Rinker: This Court has focused on jurisdiction to impose a tax in two separate areas.
Although they are separate, they are somewhat related.
One is the due process ground and the other has to do with the commerce clause ground.
Unidentified Justice: You didn't raise a due process issue here.
Mr. Rinker: That's correct.
Holmes does not dispute that Holmes... that Louisiana and Holmes have a due process contact, but the issue here is that there is no contact between the activity or the various activities involved with importing the catalogues and the State of Louisiana.
Simply by placing an order does not constitute activity certainly in light of this Court's past decisions on what constitutes activity subject to tax which is sufficient to impose the tax.
Unidentified Justice: I just don't understand the argument.
If the activity is sufficient for due process purposes to permit the taxing jurisdiction to tax, then how does the commerce clause change the result?
Mr. Rinker: I don't agree with your premises, Justice O'Connor, and that is that the activity does not create the right of a state to tax.
Holmes, because it operates department stores, it makes sales, it owns property, creates in Louisiana the right to actually tax Holmes, but the particular activity which we are talking about here, and that is the distribution of catalogues, does not establish a link with the State of Louisiana which allows Louisiana to tax it on commerce clause grounds.
On due process grounds, certainly, no one can argue that Holmes has great and significant contacts with the State of Louisiana.
But for commerce clause purposes at least as far as the way this Court has interpreted so far, is that the tax has to be imposed on the activity of the taxpayer within the taxing jurisdiction.
Unidentified Justice: Suppose a customer of Holmes ordered from Holmes an item of equipment.
Holmes ordered it from out of state and had it shipped directly to its customer, and this customer is liable for use tax.
Mr. Rinker: That's correct.
Unidentified Justice: That is because they are going to use it in the State of Louisiana.
Mr. Rinker: You are exactly correct, Your Honor.
The customer would be liable for the use tax.
Unidentified Justice: But also Holmes, Holmes could be made to collect that tax.
Mr. Rinker: That's correct, but--
Unidentified Justice: Now, I don't... and the activity is the receipt and use of something in Louisiana.
Mr. Rinker: --You're right, Your Honor.
Holmes would be required to collect a use tax, and this Court made the point very clearly in its National Geographic case, where the question was whether or not the State of California could require National Geographic to collect a use tax on sales of goods made to particular residents in the State of California.
Unidentified Justice: Holmes certainly is having these catalogues imported and delivered to its customers for use by them in the State of Louisiana.
Mr. Rinker: That's correct, the customers are in fact using the catalogues.
If this were a tax on Holmes--
Unidentified Justice: Why can't you tax Holmes for having these things imported for use in Louisiana?
Mr. Rinker: --Well, Justice White, as you just pointed out, the person who is actually using the catalogues within the State of Louisiana is the recipient, not Holmes.
Unidentified Justice: Yes, but Holmes is certainly having that use provided.
Mr. Rinker: --Holmes receives the benefit of people's using its catalogues within the taxing jurisdiction.
That is certainly correct.
Unidentified Justice: Hopefully.
Mr. Rinker: Hopefully will receive them.
Otherwise presumably Holmes would not have ordered the catalogues in the first place.
Similarly, this Court might focus on the question of whether or not in the case of the designer blue jeans or in the case of Gucci handbags, are those retailers liable for use tax in Louisiana when someone carries them around within the State of Louisiana?
Technically they are using and advertising those products by having those particular articles of clothing or apparel with them at the time.
Unidentified Justice: Could Holmes have made a dollar in Louisiana without those catalogues?
Mr. Rinker: Yes, they could have, Your Honor.
Unidentified Justice: How?
Mr. Rinker: People go and shop at Holmes and have been shopping at Holmes for over 150 years, long before catalogues ever became--
Unidentified Justice: Those are pretty old people.
You mean in the Holmes store.
Mr. Rinker: --Somebody would still be shopping over there also.
Unidentified Justice: You mean in the Holmes stores.
Mr. Rinker: Yes, Your Honor, they have been shopping at the Holmes stores, and it was not necessary for the catalogues to be distributed in order for them to purchase items from Holmes.
Unidentified Justice: Well, why did Holmes waste all that money if it wasn't necessary?
Mr. Rinker: Holmes at one time was contemplating--
Unidentified Justice: Did it have a loss or something?
Mr. Rinker: --No, there wasn't a loss involved, Your Honor, but there are several reasons for distributing catalogues other than the cases that you faced... other than the situations in the cases that you faced where there is--
Unidentified Justice: To get business.
There is no other reason that I can conceive except for business purposes.
Mr. Rinker: --That is correct.
It is for business purposes.
Unidentified Justice: And to get... the only business they were interested in was selling.
Mr. Rinker: That's correct, Your Honor, just as Holmes--
Unidentified Justice: And the only interest in Louisiana was to sell something to a Louisiana citizen.
Mr. Rinker: --That's right.
That's why Holmes caused them to be imported.
There is no doubt about it.
But the public relations effect of the catalogues--
Unidentified Justice: You say Holmes caused it to be imported.
Mr. Rinker: --That's correct, Your Honor, they did cause it to be imported.
Unidentified Justice: And if they had picked them up and delivered them themselves they would have been in trouble.
Mr. Rinker: If they had to come up and deliver it themselves, there is no question that at that point Holmes would have had possession and control of the catalogues within the State of Louisiana.
That possession and control would be sufficient to impose the tax.
Unidentified Justice: I can now see the memorandum that the law department gave Holmes.
Mr. Rinker: I apologize, Your Honor.
Unidentified Justice: I can now give you the law memorandum that the lawyers gave Holmes.
If you do it this way you won't have to pay taxes.
Is that correct?
Mr. Rinker: That's basically correct.
Our opponents, however, suggest that we did this solely in order to avoid taxes.
That is certainly not the case.
Unidentified Justice: Well, what other reason?
Mr. Rinker: Holmes ordered its catalogues in this manner because it participated in what is called the Atkins Buying Organization.
In its participation with this organization in New York it obtained the design, construction, printing, and distribution of catalogues at discount rates.
It had no control over where the catalogues were going to be designed.
It had no idea where the catalogues were going to be printed.
It simply relied on its participation in this purchasing organization in New York to handle all of this.
If in fact the purchase organization had found that the best arrangement could have been made with Louisiana printers, it perhaps would have contracted with Louisiana printers for this purpose.
In fact, the organization didn't find that.
Holmes did not adopt this method of distributing catalogues in order to avoid Louisiana taxes.
We are focusing here on the obligation of a state to collect a use tax versus the obligation for it to have a use tax imposed upon its use of goods in the state.
As I mentioned in the National Geographic case, this Court specifically pointed out the distinction between imposing the obligation on Holmes to collect a use tax, which we would not dispute in this case.
If in fact this were a situation where the taxing state was trying to get Holmes to collect taxes on the value of the catalogues in the hands of a recipient, there would be no problem, and the state could do that.
The state could impose the obligation on us.
Because we have... because Holmes has due process contacts with Louisiana, the state could require us to collect the tax from the recipients.
However, this Court made it very clear in its decision in National Geographic by stating that however fatal to a direct tax, and that is the tax we are talking about here, direct tax, direct use tax on Holmes on the value of these catalogues, might be, that particular legal argument does not apply in the case of imposing the obligation on the taxpayer to collect a use tax on someone else in the taxing state who actually used the goods which are sought to be taxed.
That is the basic difference in our case.
In this case the operating incident of any activities by Holmes took place outside of the taxing state.
All of the manufacture and construction of the catalogues, the addressing, the mailing took place out of Louisiana.
None of the activity sought to be taxed to constitute use or distribution with Louisiana took place in the State of Louisiana.
Unidentified Justice: But if one looks at the whole plan, so to speak, certainly you can pick out incidents that took place elsewhere, as you point out, but the idea was Holmes', they wanted to engender a distribution of catalogues in Louisiana that would help sell their products in Louisiana.
There are certainly a lot of Louisiana ties.
Mr. Rinker: You are correct, there are a lot of Louisiana ties sufficient for establishing of the due process, for example.
But I will give you an example.
If in this particular case the catalogues were printed in the State of Georgia and were trucked through each of the states to get to Louisiana, including Mississippi and Alabama, presumably each of those states, if they had decided they could tax goods in interstate commerce, as we are doing here, those states could impose a use tax on the goods as they are traveling through the state.
Unidentified Justice: But they wouldn't have nearly the claim that Louisiana would, because Holmes is located in Louisiana.
The stuff is going to people in Louisiana to stimulate sales in Louisiana.
Georgia and Mississippi do not have any claims like that, do they?
Mr. Rinker: But the due process contacts between Holmes and the State of Louisiana exist in those states.
For example, if we dropped off merchandise there or catalogues, those states also would have a right to impose a use tax collection obligation, but presumably... and also in those states since the catalogues are under our possession and control in the hands of the printer, those states could assess a use tax on the value of the catalogue, because the state in those states, at least in the State of Georgia where one of the printers is located, the catalogues are actually present there and we can have some control over them.
Once goods are placed in the stream of interstate commerce, no one, not even the owner, is deemed to have any possession or control incident to ownership, and at all times these catalogues are located in commerce.
Unidentified Justice: You say no one is deemed to have any control incident to ownership when goods are placed in the stream of interstate commerce.
Mr. Rinker: For purposes of use taxation.
Yes, Your Honor.
Unidentified Justice: Well, when you add for purposes of use taxation then you are relying on some cases of this Court?
Mr. Rinker: Yes, Your Honor.
In your earlier cases prior to the Complete Auto Transit case, you pointed out that goods in interstate commerce are not subject to any type of direct tax.
Presumably Complete Auto did not overrule those earlier decisions.
Interstate commerce involving goods starts at the time that they are actually shipped and ends at the time of acceptance of the catalogues.
In this case acceptance would have taken place upon the removal from the post office box by the recipient of the catalogue of the catalogue.
At the time the recipient takes the catalogue, it is not Holmes's catalogue and no use tax can be imposed on Holmes.
Therefore during the entire route from the time the catalogue is actually dropped into the mail until the recipient takes it, Holmes does not have any right to the catalogue or does not exercise any rights incident to ownership.
Those rights mean possession or control over the catalogues--
Unidentified Justice: Mr. Rinker--
Mr. Rinker: --incident to ownership sufficient for taxation.
Unidentified Justice: --Why do you say that presumably Complete Auto Transit does not overrule those cases?
Mr. Rinker: Well, in... Complete Auto Transit dealt with, again, activities rather than taxation of goods.
Complete Auto Transit--
Unidentified Justice: You can tax the activity of conducting interstate commerce but you can't tax the goods that are going through interstate commerce?
Mr. Rinker: --The activities taxed in Complete Auto and its progeny are solely related to indirect benefits to interstate commerce.
In those cases the tax was imposed, for example, in the Complete Auto case, imposed upon the gross receipts of a trucking company which shipped the goods.
The Court didn't even consider the possibility that the state might tax the goods while they were in the truck being shipped.
It only focused on the issue of whether the trucking activities were subject to taxation.
Unidentified Justice: Why is it more harmful to what the commerce clause seeks to protect to allow the goods to be taxed than it is to allow the activity of carrying the goods to be taxed?
Doesn't either one equivalently harm interstate commerce?
Mr. Rinker: In the first place, the activities can be more clearly identified with a particular taxing jurisdiction.
For example, in Commonwealth Edison versus Montana it was clear that the coal was being mined in the State of Montana.
There was an activity within the State of Montana for which a tax was imposed.
In Complete Auto, the activity was the shipping on particular trucks within the State of Illinois... within the State of Mississippi that was taxed.
In our case, if someone is allowed to impose a direct use tax on goods which are the commerce itself, every state through which the commerce passes would theoretically have the right to tax those goods provided that those states through which the goods were being transferred had due process contacts with the taxpayer.
Unidentified Justice: Why isn't that the same thing with the trucker who carries the goods?
Presumably every state through which that trucker drives can tax the activity of his trucking.
Isn't that right?
Mr. Rinker: That's correct, but there--
Unidentified Justice: I don't see a whole lot of difference between the two.
Mr. Rinker: --In the case of the goods, the goods are isolated... in the case of goods or the catalogues in this particular case, there has to be some kind of activity, as the Court pointed out, and the nexus test in the Complete Auto case is that there must be some nexus between... and Justice Brennan, who wrote the opinion, pointed very clearly that the connexity has to be between the activity and the taxing state.
In this case there is no connection between the activity and the taxing state.
There is a connexity between Holmes and the taxing state, but not between the activity--
Unidentified Justice: Well, Mr. Honchell--
Mr. Rinker: --involved in affording the catalogues.
Unidentified Justice: --Now, wait a minute.
If the activity is causing the distribution in Louisiana, that is connected with Louisiana.
Mr. Rinker: But there is no operational incidence of any activity within the State of Louisiana which can be taxed.
Unidentified Justice: Well, sure, it is having the catalogues distributed there.
Mr. Rinker: Having the catalogues distributed in Louisiana does not involve any operational incidence, does not involve any act by Holmes within the taxing state.
We place an order--
Unidentified Justice: Holmes caused--
Mr. Rinker: --even assuming the state's theory--
Unidentified Justice: --Holmes caused the distribution.
He ordered it.
He paid for it.
He caused the distribution in Louisiana.
Or it did, I should say.
Mr. Rinker: --Correct, it did cause the distribution in Louisiana simply by placing an order for the catalogues, but that activity took place outside of the State of Louisiana.
Therefore Louisiana has no jurisdiction to tax, to impose a direct tax on an activity which took place outside of its borders.
Unidentified Justice: I thought the distribution occurred within the state.
Mr. Rinker: The actual transfer of title, perhaps, under the state's theory.
Unidentified Justice: Okay.
That's what we're talking about.
Mr. Rinker: But Holmes did not engage... because the catalogues at all times, even when they are in the state, when they are in the mailbox, when they are in the postal service--
Unidentified Justice: Before they got to the mailbox there was a direction by Holmes in Alabama to the printer in--
Mr. Rinker: --Atlanta, Boston, and Oklahoma City.
Yes, Your Honor.
Unidentified Justice: --Yes.
Was there not?
Mr. Rinker: Yes, Your Honor.
Unidentified Justice: Directing the precise addresses to which the catalogues were to be delivered?
Mr. Rinker: That's--
Unidentified Justice: And that action took place in Louisiana, didn't it?
Mr. Rinker: --That is not correct, Your Honor, and the record certainly does not support that.
Unidentified Justice: The direction to the printer to mail them to those addresses--
Mr. Rinker: The actual instruction... in the first place, the record does not support that the Holmes person who said, we want to order the catalogues, actually placed the order from within the State of Louisiana.
That is not in the record.
In the second place, the person who ordered the catalogues ordered them from a buying organization in the State of New York.
The State of New York then directed the particular printers... Holmes had nothing to do with the selection of the particular printers.
Unidentified Justice: --Who gave the printer the addresses?
Mr. Rinker: Holmes provided them to the buying organization, which ultimately got to the printer.
That's correct, Your Honor.
Unidentified Justice: I see.
Mr. Rinker: But all of those activities took place outside of the State of Louisiana.
Unidentified Justice: Mr. Rinker, supposing that you were looking at this transaction from a philosophical point of view, from on high, and you looked at what took place in Georgia, and what took place in Louisiana, and what took place in Mississippi and Alabama and the states... which state do you think would have the greatest claim, just in a perfectly common sense way, to put a tax on this transaction?
Mr. Rinker: Assuming that there was an actual transfer of title to the catalogues, which I mentioned earlier is still in dispute, transfer of title to Holmes prior to delivery to the particular residents, any of those states, assuming a sale had been completed there, could have imposed a sales tax, but all of those states happen to have exemptions for printed materials.
All those states also happen to have exemptions from their sales tax for merchandise that is sent outside of the state or is intended for distribution outside of the state, so presumably those states could have a right to tax the catalogues, but they chose not to.
Unidentified Justice: Yes, but why don't you answer the Chief Justice's question?
Mr. Rinker: As to which one has the closest contact?
Unidentified Justice: Yes.
Mr. Rinker: The one that has the closest due process contact with the State of Louisiana is Holmes, but I think the problem is, we are trying to mix two different concepts, the due process concept versus the interstate commerce clause concept.
Unidentified Justice: Mr. Rinker, does it make any difference to you... from your response to the questions I gather it doesn't... that the tax is not upon the activity but upon the property?
Mr. Rinker: It--
Unidentified Justice: I mean, so long as the activity would justify a tax on the activity we can assume that the tax is a tax on the activity as opposed to a tax on the property, which is what it is?
Is that right?
Mr. Rinker: --In brief, our argument is that since there are no activities by Holmes within the State of Louisiana, activities being those types of activities similar to the ones that this Court has addressed in its previous decisions after Complete Auto, that in fact there are no activities, and because of that the tax must be imposed on the goods.
Unidentified Justice: But you concede that if there is an activity that could be taxed as an activity, then this tax, even though it is not a tax on an activity but simply a property tax, must be upheld under the commerce clause?
Mr. Rinker: Assuming there is an activity which has sufficient connexity and sufficient operating incidences under the state statute which requires distribution, then it would be subject to tax.
But we are saying that there are no activities in the State of Louisiana which subject the catalogues to being taxed.
The incidental activities that have been referred to by the various Justices, such as placing an order, are not operational in the sense that there is no actual transportation by Holmes in the State of Louisiana.
There is no mining by Holmes.
There is no collection of a use tax obligation on the citizens who actually receive and do use the catalogues.
And because of that we say that there is no activity in the State of Louisiana upon which the state can assess its tax.
Unidentified Justice: Mr. Rinker, let me ask you a question, if I may.
Supposing instead of mailing them they had delivered the whole 100 percent of the catalogues to a Louisiana location, then distributed 82 percent to Louisiana residents and 18 percent to Mississippi residents.
Could they tax 100 percent of the goods in that event?
Mr. Rinker: Under existing jurisprudence, yes, Your Honor.
All those could be taxed.
The reason being is that Holmes took possession and control of the catalogues--
Unidentified Justice: There is an activity involving all 100 percent.
But do you think the state would now claim they could... say 82 percent now to go Louisiana by mail and 18 percent to Mississippi.
Would the state claim Louisiana can tax all 100 percent?
Mr. Rinker: --In that particular case I would think Louisiana might try and tax 100 percent.
We of course then would argue that these goods were still in the course... as long as they are not stored for our benefit--
Unidentified Justice: You may the same argument you make--
Mr. Rinker: --and they are just temporarily stopped over, that they are intended to be continuously in interstate commerce and that that incidental stopover, we will say, to be shifted from a common carrier to the postal service is not sufficient to impose the tax on Holmes of the value of catalogues sent outside of the state.
Unidentified Justice: --You are going to lose that once you have conceded that so long as there is an activity that the state could place a tax on, and if we find there is such an activity here, it really wouldn't matter where the catalogues were shipped, right?
We just look at the whole activity.
Mr. Rinker: No, Justice Scalia.
That is not the case here, because there is... if the catalogues are shipped to Louisiana and they do sit in a warehouse, for example, before being transshipped, we are engaged in the activity of storage.
We are not engaged in any activity like that in the instant case.
Unidentified Justice: You would also be engaged in the activity of shipping 82 percent to local residents and 18 percent to out of state residents, and your opponent argues, well, this is the... what you have got here is the functional equivalent of that but you have just used the mails.
So they must be claiming the right to tax the 18 percent as well as the 82 percent.
Mr. Rinker: But the state tax statute deals with use, which can be defined as any type of use, including storage.
Storage is one element of use.
In the case where the catalogues are stored before they are distributed, a use tax can be imposed on Holmes.
In the case where there is actual distribution activity, such as in the Complete Auto case, where there were... the distribution activities involved transportation of a trucking company of particular goods, that activity of distribution is subject to tax.
Holmes does not engage in such activities when it is in the state.
It simply places an order in a foreign state and requires those catalogues to be sent to particular residents.
Unidentified Justice: An order for transportation.
Mr. Rinker: I beg--
Unidentified Justice: An order for transportation.
Mr. Rinker: --And orders the transportation, but does not perform the activities.
Unidentified Justice: But if they had done it with their own trucks it would be.
Mr. Rinker: If they did it with their own trucks?
Unidentified Justice: Yes.
Mr. Rinker: The trucking activity could be taxed, but not necessarily the goods in interstate commerce unless the state tried to tax them because they were storing them--
Unidentified Justice: But they could be taxed.
Mr. Rinker: --on the trucks.
Unidentified Justice: And so to escape the tax you send it by parcel post.
Mr. Rinker: We didn't do it for that reason, Your Honor, but that is what actually happened in fact.
If there are no further questions, I would like to save my remaining time for rebuttal.
Chief Justice William H. Rehnquist: Thank you, Mr. Rinker.
We will hear now from you, Mr. Pugh.
ORAL ARGUMENT OF ROBERT G. PUGH, ESQUIRE ON BEHALF OF THE APPELLEE
Mr. Pugh: Mr. Chief Justice, and may it please the Court, I am delighted that you asked the trucking question.
It was of interest to me to read in one of the dissenting opinions in one of the state court decisions, paraphrasing, Holmes should not be required to have their employees to ride around on the mail trucks.
As a matter of fact, what occurred here and so found by the state court was that Holmes distributed the catalogues.
The distribution of the catalogues is a use in Louisiana.
Louisiana happens to be one of three states that adopts that word, distribution, as it relates to use.
I wouldn't suggest for a moment that the word use is not broad enough to include distribution, whether or not it is so spelled out by the state.
In this instance it is.
Unidentified Justice: Now, does this include... suppose I am... well, could you tax the mailman for distributing these catalogues?
Mr. Pugh: No, Your Honor.
Unidentified Justice: You see, the property tax, it is on the catalogues, isn't it?
It is either on the purchase or the use of the property, but you have to have a property interest, right?
Mr. Pugh: It is the use of the property, Your Honor.
What happened is, Holmes--
Unidentified Justice: Of your own property.
If it is somebody else's, if I borrow a neighbor's--
Mr. Pugh: --It is Holmes' property.
Unidentified Justice: --If I borrow a neighbor's catalogue and read it, you wouldn't hit me with a use tax, would you?
Mr. Pugh: No, sir.
It is Holmes' catalogues.
They bought them.
They paid for them.
They told them precisely who to send them to.
They took all of the charge customers to send them to them.
That is where the list came from, the charge customers.
They admitted during the trial that it is the charge customers who are more likely to use the catalogues.
In addition to that, the catalogue itself spells out in the centerfold, it gives you an 800 number.
It gives you all of the phone numbers for each of the local stores.
In addition to that, the telephone directory, which is an exhibit here to the extent applicable for Holmes, has got a mail order number.
How can you mail order what you don't know is not mail orderable?
In this instance, you find out by reading the catalogue.
It tells you if you want to ask further questions to call up on it.
Now, Holmes owned the catalogue.
Unidentified Justice: Mr. Pugh--
Mr. Pugh: It was so found by the state court below.
Unidentified Justice: --Mr. Pugh?
Mr. Pugh: Yes, Your Honor.
Unidentified Justice: If Holmes owned the catalogues in Louisiana, did they also own the catalogues that were sent to the Mississippi customers?
Mr. Pugh: Well, Holmes would own those catalogues just the same as if they had been sent in Louisiana, but to answer the Court--
Unidentified Justice: Could Louisiana impose a use tax on the 18 percent that went to out of state customers?
Mr. Pugh: --No, sir, and would not attempt to.
Unidentified Justice: Could Mississippi impose a use tax on the 18 percent that went to Mississippi?
Mr. Pugh: It could if it chose to do so, Your Honor.
Unidentified Justice: You think it could.
Mr. Pugh: It may be that 18 percent is de minimis.
I am not sure.
Unidentified Justice: Well, it is a fifth of the total amount.
I guess it is worth fighting about.
You think an out of state... in other words, if Holmes' stores were located in Mississippi and all of the management went in Mississippi, and the catalogues just happened to be sent to Louisiana customers, you would still have as strong a case?
Mr. Pugh: --Well, I would have a case insofar as Louisiana is concerned.
Unidentified Justice: Right.
Mr. Pugh: In fact, I've got a strong case because the other--
Unidentified Justice: But you do not rely on the fact that the stores are located in Louisiana?
Mr. Pugh: --I rely on the fact that the stores are located in Louisiana to assist in the nexus question, and in addition to that the whole purpose--
Unidentified Justice: Do you think you need that?
Do you think you need the stores... because that is why I asked you about Mississippi.
Mr. Pugh: --No, sir, I don't think I need the stores.
But I've got 13 of them there, and I've got 5,000 employees.
I've got half a million--
Unidentified Justice: But if we are focusing on the activity--
Mr. Pugh: --The activity is the distribution.
Unidentified Justice: --and their ownership of the catalogues just before they are turned over to their customers--
Mr. Pugh: Yes, sir.
Unidentified Justice: --it would be the same case, as I understand it, if the stores were located in Mississippi.
Mr. Pugh: As I can appreciate what the Court is saying, I do not disagree with what the Court is saying.
I do say in this instance, and of course we don't have to reach the Mississippi problem--
Unidentified Justice: So that if any manufacturer mails something to a customer in another state, even free, the manufacturer can be taxed on that item in the other state, or causes it to be mailed by a third party.
Mr. Pugh: --Well, I guess we had better decide now whether we are talking about who is going to collect the tax.
In this instance Holmes is in Louisiana.
They argue that they don't have to pay the tax because they don't have somebody up in New York that is collecting the use tax for them, and of course that doesn't make a lot of sense in that Holmes is in Louisiana, Holmes is directly responsible for the tax and should be obligated to pay it, and we would insist to the Court or suggest to the Court that they ought to be liable for it.
Unidentified Justice: We are concerned about who else can be hit with this kind of tax.
I assume that under the theory that the state is running here, anybody who goes to a mass mailing firm and gets, you know, has them get a list of customers, every time you send a brochure to a customer in Louisiana, you are telling me that the Louisiana courts hold that I own the brochure, and I am using it when I get it mailed to a customer, and therefore I can be taxed on that?
Isn't that... that is the logic of the position the state is making, isn't it?
Mr. Pugh: That could certainly be construed under the position that we are taking.
Unidentified Justice: Yes.
Well, that is a good source of tax revenue.
What case of ours is the strongest support that you can cite?
Mr. Pugh: Well, the strongest support for the position that I am primarily taking in this case is the one that was handed down, xx Pipe, last year, when the suggestion was made xx the... excuse me... here it is, taxpayers are better... to establish and maintain a market in this state for the sales.
That is exactly what they are doing.
They are maintaining a market in the State of Louisiana for their sales by the use of the catalogues.
Precisely what they are doing.
In addition to that, the National Geographic case speaks in terms of being, whether or not it is disassociated from the local business.
That is the last thing this is, is disassociated from the local business.
It is actually promoting the local business for Holmes.
And that's the purpose of the catalogues.
Unidentified Justice: More than that, you are promoting out of state business.
I mean, what is the difference?
If you own the brochure, as you say, you automatically own it if you have ordered it.
Mr. Pugh: You own it.
Unidentified Justice: And if you are distributing it in Louisiana that is enough.
Mr. Pugh: It is.
And that's what they're doing.
Now, turning back, if I may for a moment, to the state court in Louisiana ownership does not require that there be possession of the item itself.
You may own something in Louisiana without possessing it.
In addition to that, and so found by the lower court, in addition to that these were gifts, and the gifts are not completed until they are accepted by the resident and either kept or thrown away.
They belong to Holmes from the time and during the processing, during the mailing, during their receipt in Louisiana they continued to belong to Holmes.
As Justice O'Connor says and counsel acknowledged, Holmes is a dealer, a dealer who imports or causes to be imported tangible personal property into Louisiana for distribution is liable for the tax, precisely what took place here.
Distribution, as I have indicated earlier, is a use that is taxable.
Distinguishing between the two, there was some question, I believe, earlier concerning the sale or use tax.
The basic distinction as I appreciate between the two is, a sales tax is on the freedom of purchase, and a use tax in turn is on the enjoyment of that purchase.
That is precisely what Holmes was doing.
They were enjoying the catalogues that they purchased for the purpose of furthering their business.
Did you have a question, Your Honor?
I saw you move your hand, and I thought you were about to--
Unidentified Justice: Don't provoke me, Mr. Pugh.
Mr. Pugh: --You gave me enough trouble earlier, Your Honor, I'll tell you.
As I have indicated, these catalogues were designed by Holmes, admittedly by their own employees for the purpose of promoting their sales, for the purpose of generating business.
They did in fact generate business.
They caused people to come into the stores.
For that reason we believe that Holmes is liable for the tax, and I do not believe I need any additional time unless I may answer any questions the Court might have.
Chief Justice William H. Rehnquist: Thank you, Mr. Pugh.
Mr. Pugh: Thank you.
Chief Justice William H. Rehnquist: Mr. Rinker, you have three minutes remaining.
ORAL ARGUMENT OF ANDREW RINKER, JR., ESQUIRE ON BEHALF OF THE APPELLANT -- REBUTTAL
Mr. Rinker: Mr. Chief Justice, and may it please the Court, in focusing again on Justice O'Connor's question about the fact that Holmes caused the importation of these catalogues, can Holmes be subject to the tax for causing this importation?
The Louisiana use tax imposes a tax on the use which defines certain terms, including the term distribution and storage.
Causing importation is not--
Unidentified Justice: Suppose Holmes had ordered 3,000 travel alarm clocks to give to their best customers, and they told... they ordered them from out of state and gave the names and addresses of the customers they wanted the clocks mailed to.
Now, do you suppose... couldn't the state charge Holmes a use tax on those clocks?
Mr. Rinker: --Justice White, no, they could not, because Holmes does not exercise any power or control over those clocks once they come into the taxing state.
A use tax is on the value of the use of tangible personal property.
Holmes does not actually use those clocks in the State of Louisiana.
Unidentified Justice: They certainly made them available to their customers.
Mr. Rinker: It's true, but once those clocks go into the hands of the customer, they are not in Holmes's hands, and a use tax on Holmes cannot be imposed.
Unidentified Justice: Say they ordered 3,000 alarm clocks.
They send 1,500 of them to us, send the other 1,500 to the following people.
They intend to give the 1,500 delivered to them to other people.
They can be taxed on the 1,500 but not the other.
Mr. Rinker: Yes, because there is a use within the taxing state.
We exercise control, possession and control over those clocks.
We can do with them whatever we want within the State of Louisiana, and those would be subject to the use tax.
The ones that are mailed, however, are not subject to tax because we do not exercise any power over those clocks within the State of Louisiana incident to any ownership.
Power and control over the clocks in the State of Louisiana is essential to impose the tax.
The state statute uses the words distribution.
Distribution is not simply causing something to be imported.
Distribution involves the actual delivery.
Unidentified Justice: But the construction of the state statute is not for us.
The Louisiana court has held the state statute does cover this.
Mr. Rinker: In determining the operational incidence of the statute, you are correct, the state court does determine that.
This court, however, has the prerogative of determining whether or not the incidence upon which the state court imposes the tax does violate the commerce clause, and we are saying that this... the importing aspect of distribution is not one of the activities which the state has the power to tax under the commerce clause because in that instance there is no activity within the State of Louisiana by Holmes which can be taxed.
Remember, the key word is activity by Holmes with respect to those clocks within the State of Louisiana.
I would like to point out also in my closing moments that the severe burdens that might be caused by following the state's position in this case certainly, if a taxpayer can be taxed simply by having something mailed into the state, provided that taxpayer has some minimum contacts with the state, then all the materials mailed to particular residents will be subject to tax in the hands of the taxpayer.
For example, Red Cross mailings.
The Red Cross organization has offices in virtually every state.
If they send out from Washington, D.C., or from the national or international headquarters notices soliciting funds for particular purposes, the Red Cross is using property within the State of Louisiana, and to the extent it is using property under the state's theory, the value of those pieces of paper in a state are then subject to tax.
This tax would also impact universities trying to solicit particular funds for their operations.
You say, well, there is no contact between a university, but I think that you will find recruiting--
Chief Justice William H. Rehnquist: Your time has expired, Mr. Rinker.
Mr. Rinker: --Oh, sorry.
Thank you, Your Honor.
Chief Justice William H. Rehnquist: The case is submitted.