FORD MOTOR CREDIT CO. v. DEPARTMENT OF REVENUE, FLORIDA
Argument of Mark L. Evans
Chief Justice Rehnquist: We'll hear argument next in No. 88-1847, Ford Motor Credit Company v. Department of Revenue of the State of Florida.
Mr. Evans, you may proceed.
Mr. Evans: Mr. Chief Justice, and may it please the Court:
The issue in this case is whether Florida's tax on intangible property fails this Court's internal consistency test and violates the Commerce Clause.
As I will explain in a moment, we think the case is controlled by the Court's decision in Armco, which struck down a facially discriminatory West Virginia tax that we think is indistinguishable from the Florida statute.
The Florida tax is imposed annually on the full value of two different categories of accounts receivable notes and other obligations.
One category is based on domicile, the other one is based on business situs.
First, if a... an intangible asset is owned by a Florida domiciliary, it is subject to the tax without regard to its business situs.
Second, if the intangible has a Florida business situs, which is defined in the statute to mean that it arose out of a sale of property in Florida, it too is subject to the tax, but only if it is owned by a nondomiciliary.
There seems to be no dispute here that the tax fails a straightforward application of the Court's internal consistency test, and that is so because if every State had the precise statute that Florida has, a interstate company operating in interstate commerce, domiciled in one State, selling... financing sales in another State, would pay two taxes.
One tax to his domiciliary State, under the domicile theory, another to the business situs State under the business situs theory.
Unknown Speaker: Have we previously extended the internal consistency test to property taxes?
Mr. Evans: Well, the answer to that is slightly involved in this sense.
It has not been extended to property taxes in the name of an internal consistency test, but as we showed in our opening brief, the first instance that we could find of the Court actually using an internal consistency analysis was a century ago in a case involving a tax, a property tax, on the value of capital stock of a company that, that owned moving... moving rail cars.
And to that extent we think, because we do think that the test itself, the analysis that underlies it is so deeply rooted, the answer to the question is, I think, that the Court has applied it to a property tax and in fact a tax in that case which was on intangible value.
Just let me spell out again why I think there is a... why I think there is an internal consistency problem.
If you're operating in two States... domiciled in one and financing in the other, you pay a domicile tax in effect to your domicile State, a business situs tax to your business situs State.
But if you are operating in just one State, you pay only a domiciliary tax to your home State.
The result is that an intrastate company who confines its operations, its financing operations to just its own State, pays one tax, while its competitors have to pay two.
Unknown Speaker: Mr.--
--Suppose... go on.
Mr. Evans, the thing that makes the tax burdensome is the tax on the domiciliary, isn't it?
Mr. Evans: No, we don't see it that way.
The tax is identical in our view to the tax that was at issue in Armco.
Now, Armco had... Armco also had tax on... was taxed on two bases.
One on manufacturing and one on wholesaling.
Manufacturing tax applied to all manufactured goods in West Virginia.
The wholesaling tax applied only to goods manufactured in another State.
The party challenging that tax was somebody who manufactured in Ohio.
We are in the same posture.
The domiciliary portion of this tax applies to domiciliaries, regardless of where the business situs is--
Unknown Speaker: But you are not a domiciliary.
Mr. Evans: --No, we're not.
But we are, but we are a nondomiciliary, and the business situs tax that Florida--
Unknown Speaker: And the--
Mr. Evans: --imposes applies only to nondomiciliaries, just like the West Virginia wholesaling tax, but only--
Unknown Speaker: --But just focusing on this for a moment, if they, if they collected... what... would it not be complete relief here to say they cannot collect taxes from domiciliaries except to the extent that the debts have a situs in Florida?
Mr. Evans: --I think, one, that would be one solution to the--
Unknown Speaker: And do you have standing to insist that that be done?
Mr. Evans: --We think we do.
Unknown Speaker: Are you prejudiced at all by the fact that domiciliaries may pay more taxes than you do?
Mr. Evans: The question, Justice Stevens, is the interaction of this two elements of the tax.
Unknown Speaker: Well, I understand, but are you prejudiced at all by the fact that Florida domiciliaries may pay a higher tax than you do?
That's the discrimination caused by this tax.
Mr. Evans: --Well, the discrimination as we see it really isn't... is really interstate commerce versus intrastate commerce.
Unknown Speaker: Well, but you are not prejudiced by the fact that Florida domiciliaries must pay a higher tax than you do, theoretically, are you?
Mr. Evans: Well, I... I can't answer that question no.
We clearly are hurt by the system that's put up, and we are hurt in exactly the same way that the Ohio--
Unknown Speaker: You're hurt by the possibility you might be taxed in Michigan as a domiciliary.
Mr. Evans: --No.
We're hurt by the... by the prospect that we are... and the fact that we are taxed in Florida on the basis of the business situs of our intangibles there, where our competing intrastate local banks are not taxed on the basis of business situs.
We are in exactly the same posture for standing purposes, Justice Stevens, as was the manufacturer in Ohio.
Unknown Speaker: I don't understand.
Your intrastate competitors are paying taxes on the same accounts receivable, aren't they?
Mr. Evans: They are paying taxes, but only under the... only under the concept of a domiciliary tax.
The State applies, the State has a theory that both domicile and business situs contribute to the value of intangibles.
And it... but it only taxes one of those things with respect to its own domiciliaries.
Unknown Speaker: But the tax is just the same as your tax.
Mr. Evans: --Well, let me try to... let me just try to draw the parallel to Armco, because we don't think there is any distinction in principle--
Unknown Speaker: Well, I'd like to understand it without reference to precedents, is just how this whole thing hurts you.
I just don't see it.
Mr. Evans: --Well, let me... let me present it this way.
We are subjected to a risk that... that a local Florida--
Unknown Speaker: That you might be taxed in Michigan as a domiciliary.
Mr. Evans: --That is correct.
Unknown Speaker: That's the whole case, isn't it?
Mr. Evans: Well, I think that's, that's a part of it.
And the risk itself is not, is not a cost-free risk.
We bear that risk every day when we compete in a very competitive financial services market in Florida, where the success or failure can turn on very small margins.
And the risk is something we have to take into account when we, when we determine what our costs are.
A Florida domiciliary knows that under no circumstances when he is competing against us for a Florida financing opportunity, or a contract that is a financing contract, he knows that he will never be taxed a second time on that... on that receivable, whereas we have to bear the risk that it will be taxed a second time.
Unknown Speaker: And you, I suppose you say that's a... you're permitted to raise this issue by the internal consistency rule?
Mr. Evans: Precisely.
And, Justice White, let me just, recognizing that there is an issue beside precedent, precedent does seem to us to be absolutely controlling and indistinguishable in principle.
The party that sued in Armco was the Ohio manufacturer.
The argument could have been made precisely the same way to him, that he is being discriminated against, or he has... his only complaint is the way that the State treats its own manufacturers.
That was the internal consistency problem.
Unknown Speaker: The problem is that the whole, the whole internal consistency test is based upon prospective damage and not actual damage, isn't it?
Mr. Evans: It is.
The test is--
Unknown Speaker: Because it doesn't matter whether you are actually being taxed twice, it's the theoretical possibility of your being taxed twice that causes us to apply the test.
Mr. Evans: --That's correct.
Unknown Speaker: So it's sort of hard to get upset about potentiality as a basis for standing, if you are going to apply that kind of a test.
Mr. Evans: Well, I think, Justice Scalia, there is, although I know some members of the Court don't necessarily agree, there is good reason for viewing the test as a hypothetical test.
The alternatives to an internal consistency analysis are only two, as we see them.
One is to accept the reality of double taxation, which would contradict the one bedrock principle, I think, of the Commerce Clause.
A second alternative would be to require individualized, case-by-case showings of actual double taxation in particular instances.
Unknown Speaker: Which would suffice the Court for 180 years.
Mr. Evans: Well, I... Justice, Mr. Chief Justice, I'm not sure that's correct.
Because, as I indicate, I think that this kind of analysis, which focuses on risks and focuses on the possibility of other States doing something similar to what the challenge statute does, has been with the Court for nearly a century, so far as we can tell.
It may have gone back further.
We couldn't find anything further back.
Unknown Speaker: Well, I... you certainly can cite language in the Pullman Palace-Car, but to say that was the precise rationale of the decision was the... an internal consistency... I think pushes the language a little far.
Mr. Evans: We don't say it was the whole rationale of the case, Mr. Chief Justice.
We do think that it was an instance in which the Court found it useful to look at what other States might... what would happen if other States used the same taxing mechanism.
Let me just run through why I think it would not be a good idea to open up to actual double taxation showings in every case.
First of all, every... every case would produce a lawsuit.
There would be no mechanism by which these things would be resolved other than by litigation.
Second, you would have the anomaly of State A, say Florida, adjudicating what Michigan in fact is taxing.
There may be an argument, for example, in a lawsuit brought by Ford that it is fact being taxed by Michigan on the basis of domicile, to which a State counsel might respond well, we don't really see it that way.
Do you have any authority for that being the way that the State court reads it?
Well, we don't have any definitive authority, but we paid our bill.
Well, that is not enough, we don't see it that way.
So the first issue in the State court is going to be whether Michigan in fact taxes domicile.
And if it does, the second argument for the State's lawyer is, well, it's not valid.
And so you've got the bizarre situation of the State of Florida having to adjudicate both the meaning and the validity of a Michigan statute, taxing statute.
Then you have the problem of, what if you prove it?
Which State... which State's tax gets struck down?
Do you pick the one that you happen to sue?
Does that one go?
Do you have to look to see whether there is an internal consistency at that point?
What if they are both internally consistent?
You may wind up with... having... allowing taxpayers to pick which statute... which statute must yield.
Unknown Speaker: It sounds like a good argument against the internal consistency rule.
Mr. Evans: No, it's a good argument in favor of the internal consistency test, Justice White, because none of this becomes necessary.
As I say, if you don't have a test that assumes that other States can do what this State is doing, which in fact will happen, as the Court knows from its long history in this area.
Once it blesses a tax, other States follow it because it has been, it has been constitutionally blessed by the Court.
And so that, what you wind up with is either what I am describing, if you don't have an internal consistency kind of test, or you wind up with a... with having to just suffer actual double taxation.
The one other consequence of requiring case by case showings is that you can wind up with a... with a patchwork.
You've got different taxpayers being able to establish that the tax is unconstitutional as to them, because of the States they happen to be operating in at a given time and the tax policies of that State at that moment, and other taxpayers who are identically situated, except that their State may have a slightly different policy at that moment, have a different constitutional rule.
The result of all this would be, I think, a litigation nightmare, and it's a good reason why the Court, I think, has not followed that approach.
Unknown Speaker: Well, it wasn't until the last decade that we somehow found it necessary to explicitly adopt it in order to prevent all of these horribles.
Mr. Evans: Well, I think it was--
Unknown Speaker: Somehow we stumbled along for 190 years without... without this great disaster.
Mr. Evans: --Well, I think what the Court stumbled along with was an internal consistency analysis without the label on it, because the cases repeatedly reflect the Court assuming, for the sake of consideration of a tax, that other States might, in fact probably will, adopt the same tax if it's approved.
Unknown Speaker: You cited a few cases in which we had language that could be interpreted to be the internal consistencies test, but failed to cite dozens of cases in which we make no mention of it, where it would have been relevant to an analysis of the decision if... if indeed we thought it to be the law.
Mr. Evans: Well, there are very... Justice Scalia--
Unknown Speaker: One swallow doesn't make a spring.
It's that kind of--
Mr. Evans: --Well, that may be right, but there... there are no cases that the State has cited that took a contrary position.
We have not seen any case in which the Court, with one exception, in which the Court refused to examine a State statute on its own merits on the assumption that it might well be replicated everywhere.
And that one exception was in the General Motors case which was overruled in effect by Tyler Pipe.
And I think that case no longer stands.
I think that was an exception rather than the rule.
Unknown Speaker: --Mr. Evans, can we go back to the Armco case?
You responded to me before by saying this is really just like Armco, but in Armco the taxpayer was paying a wholesale tax, the Ohio company, that its West Virginia manufacturing competitors did not have to pay.
Mr. Evans: That is right.
Unknown Speaker: That's not like this.
Mr. Evans: We think it is, Justice Stevens.
Now, the argument--
Unknown Speaker: What of... which one of your competitors does not have to pay a tax you have to pay?
Mr. Evans: --Any one of our local Florida competitors does not pay our tax.
It pays the domiciliary tax, just as... just as the West Virginia manufacturer--
Unknown Speaker: But it... doesn't it pay the... doesn't it pay a tax at the same rate on all its commercial paper the way you do?
It's... may be given a different label, but isn't it paying... I don't... I don't understand how it can possibly be, have an advantage over you, unless you look at the possibility of a tax against you in Michigan.
Mr. Evans: --Well, insofar as we're dealing with intangibles that are... that have a Florida business situs, it looks like they are paying the same thing.
It looked in Armco as if the manufacturer paid more than his out-of-state competitor, and in fact that was Chief Justice Rehnquist's point in his dissent in that case.
Unknown Speaker: Right.
Mr. Evans: That in fact they are paying the same thing, on the same kind of basis.
It was a sales price kind of tax.
And in fact the local manufacturer was paying at a higher rate.
Unknown Speaker: One was paying on manufacture, and the other was paying on wholesale receipts.
But here they are both paying on the value of the intangible paper.
Mr. Evans: --Well, the--
Unknown Speaker: Which has a situs in Florida.
Mr. Evans: --Well, but the question is whether domicile and business situs are the same thing.
I mean, the fact is that--
Unknown Speaker: Well, but the tax... the intangibles being taxed are the same, aren't they?
And from a competitive market standpoint--
Mr. Evans: --Well, the difference is, and this may come back to your earlier point, the difference is that in looking at a competitive market in Florida, Ford, because it's an out-of-state domiciliary, carries baggage, which is that risk that it might be subjected to another... another tax during the life of that receivable--
Unknown Speaker: --Yeah.
Mr. Evans: --sometime by another State.
Which is something that the local competitor never has to face.
Unknown Speaker: But in the... but in this case your concern would be satisfied if there was an injunction by the district court in effect saying do not levy this tax or a comparable tax against domiciliaries to the extent they have out-of-state business.
You see, the thing that differs, it seems to me that the problem you identify could completely solved without saving you a nickel... in short.
Mr. Evans: That was true, I think, in Tyler Pipe, and it was also true in Armco.
There was that, there is a risk--
Unknown Speaker: Well, I'm not sure.
Mr. Evans: --that one of the choices that the Florida legislature could make in order to make its statute internally consistent is that it would still wind up taxing us the way it does now.
But that is not the only choice it has.
It might, for example, take away the exemption that we... that we think effectively operates in Florida, which gives Florida domiciliaries an exemption from the business situs portion of the tax.
If it did that, then our competitors would pay, we think, equally on that... on that ground in Florida.
Or it could wind up apportioning, which we think in some respects is the proper solution.
Which... which is to say that if Florida's logic, the logic of its own tax, and we think, this is a point we think is very effectively made in our... in Florida's brief, that the underlying theory of the internal consistency test is that a State ought to be required to adhere to the logic of its own tax.
Now, it has in its very basis an assumption that both domicile and business situs are contributing factors in the benefits and protections that a State can provide.
What it does, however, is it... it doesn't operate in consistency with that, with that theory.
To the extent it taxes all of a domicile, all intangibles owned by a domicile, its theory is the domicile is the entire contributing factor.
At the same time it is taxing some other domiciles, some other... a person domiciled in another State, based on business situs, which contradicts the very theory of the domicile tax.
So either it's... either it's domicile contributing everything, or they both contribute something.
If they both contribute something, then the State ought not be allowed to tax business situs, on a business situs basis, in full.
It ought to recognize that there is somebody else contributing to the value of that intangible.
So we think that the statute is inherently defective for exactly the same reasons that the Armco statute was defective and that the Tyler Pipe statute was defective.
The State argues... we think, Justice Stevens, that our situation is utterly indistinguishable from that in Armco.
The fact that there were slightly different labels on the tax... that is, there is a manufacturing tax and a, and a wholesaling tax... made no difference, because the taxes were basically the same... operated the same way.
And for the out-of-state manufacturer, he faced a wholesaling tax from which his local competitor was exempt.
Now, the answer to that during the debate in the Court, presumably, and certainly the arguments in brief, was that well, that's true, but the manufacturer... the local manufacturer's paying a higher tax.
And it's really the same tax for the goods sold in West Virginia, the local manufacturer is paying not only what the outsider is, but actually more.
And the Court said that was not an answer to that, that in effect there was an internal inconsistency that required... that required or subjected the out-of-state manufacturers to risks of double taxation that the local manufacturer did not have.
That problem could have been solved in some respects the same way that your question suggested earlier.
That is West Virginia could have said we are going to abandon our local manufacturing tax and we're going to subject our local manufacturers to the same tax that the out-of-staters are subjected to, and the out-of-state manufacturer would have been left in the same position.
Those are just options for solution.
But the fact is that right now we are faced with a statute that leaves us exposed to risks that local companies are not exposed to, and that is, for reasons that we think are sound, incompatible with the... at least the recent Court's decisions on internal consistency.
I'd like to reserve the balance of my time.
Unknown Speaker: Very well, Mr. Evans.
Mr. Farr, we'll hear now from you.
Argument of H. Bartow Farr, III
Mr. Farr: Mr. Chief Justice, and may it please the Court:
Ford in this case has used the internal consistency test to make two challenges in its brief to Florida's intangible taxes, one based on the situs tax alone, and one to the situs tax combined with the domiciliary tax.
Ford has not pressed the first argument here this morning, and we, I believe, have answered it fully in our brief by pointing out that there is no internal consistency problem resulting from the situs test itself.
So I would like to move directly to the second point, which is the combination of the situs and the domiciliary tax, and set out, if I may, just briefly at the beginning, what our position is on that.
Simply put, it is this.
That the Court shouldn't use the internal consistency test to strike down a taxing scheme when the hypothetical tax is based on domicile, and so the taxes of only one other State are likely to be at issue, and when a relatively simply factual inquiry shows that the taxpayer in fact paid only one tax on its property, just like its local competitors.
The situation typically in which the Court has used the internal consistency test, as the Court has noted in using it, have been cases where when one hypothesizes the use of the... of a particular tax, one might conceivably be looking to cumulative taxation by 49 other States on the same basis.
That is simply not a situation that arises in the case of the tax based on domicile.
In that kind of situation we know in advance that there is likely to be only one other State that is asserting taxing jurisdiction, and you do not have the same kind of impractical inquiry that you would have with manufacturing taxes and selling taxes, which could be levied for a particular taxpayer by a number of different States, when the basis of the hypothetical tax is, as it is in this case, simply domicile.
Unknown Speaker: Well, I think... I suppose you would argue then if Michigan had exactly the same scheme as Florida, that both... both States' tax laws would be valid?
Mr. Farr: Well, we would in fact make such an argument based on the Due Process Clause cases.
But there, what I am saying here--
Unknown Speaker: Because you think the domiciliary basis for taxation is perfectly valid.
Mr. Farr: --That there is an additional basis for taxation provided by domicile, as the Court has recognized, that goes beyond the usual situs basis.
But that is not the necessary part of the argument I'm making here.
What I'm saying here is that it is a very simple question to look and see whether in fact Michigan had this tax, and very easy to see that it did not.
So in fact, when we move away from the hypothetical and move to actual practical considerations, it is absolutely clear that Ford paid only one tax on its Florida intangibles.
Unknown Speaker: But, Mr. Farr, why can't we do that with companies, like in Armco, that have only one manufacturing plant?
Mr. Farr: What I am looking at, I think, Justice Stevens, is the general run of cases.
I think there would be exceptions in any particular setting of the internal consistency test.
Unknown Speaker: Yeah, but most taxpayers don't have plants in 49 States, and if you look at the general run of Florida out-of-state companies, presumably there is one from each of the 49 other States.
So that to really survey the tax you would have to look at all the home States, wouldn't you?
Mr. Farr: But you can be assured--
Unknown Speaker: You can do it for each one, one at a time.
Mr. Farr: --Right.
When you are looking at any, a challenge by any particular taxpayer.
And I think, though, that goes to the very heart of what we're talking about.
It may be possible for using the internal consistency test to essentially litigate the double taxation or discrimination against another taxpayer from another State, which is what Ford is trying to do.
What we're saying is that where you don't have the kind of difficult factual inquiry that is likely to arise in other settings, there is no reason to move past Ford's particular situation, which shows that it did not pay a domiciliary tax, and thus paid a single tax only.
Unknown Speaker: Is it perfectly clear that the domiciliary State would be Michigan and not Delaware?
Mr. Farr: There has been no argument about it in this particular case, Your Honor, and I don't think it would make any difference.
Delaware has not--
Unknown Speaker: Except it makes it two you have to look at instead of one.
Mr. Farr: --It might in a possible case.
Unknown Speaker: Yeah.
Mr. Farr: I mean there is, frankly, I think there's a question after Wheeling Steel v. Fox whether a domiciliary State which bases its claim to domicile solely on incorporation would in fact be able to tax.
So I doubt that would arise, but that is at least a possible consideration.
Unknown Speaker: Under your view, Mr. Farr, if Michigan had a tax and Ford could show double taxation in this case, and if the Court, when it went on to say that this was a violation of the Commerce Clause, would the tax then be invalid just as Ford, so that companies that came from States that did not have the domiciliary tax would still have to pay the tax?
Or is the tax struck down in its face?
Or... I don't know how it would, how your theory would work.
Mr. Farr: The suggestion I am making, I believe, Justice Kennedy, is that in this kind of situation for this type of claim, that really the tax should be looked at as applied to a particular taxpayer.
So that a statute that has essentially what might be argued to be a logical inconsistency but causes no harm to a particular taxpayer should not be struck down with regard to that taxpayer.
Unknown Speaker: Do we have examples in our jurisprudence where this approach has been followed?
Mr. Farr: Well, there are certainly examples where the Court has said, for example in Northwestern States Cement, which is 358 U.S., the Court says we are not going to look at a hypothetical claim.
There is no actual double taxation in this case, therefore we will no go on and address the question of whether there is a hypothetical problem with the statute itself.
It seems to me that is a perfectly sound basis where the inquiry as to the particular taxpayer can be made relatively straightforwardly.
And I think this is an obvious example of that kind of case.
Taking for a moment the inquiry that I am proposing, which, as I say, departs somewhat from the idea of using hypothetical taxing burdens and looking at actual burdens, what... what do we see in this case?
As I have said, we see that Ford has not paid a domiciliary tax to Michigan, and indeed hasn't paid one to Delaware either, should that be the possible alternative.
When you look at what Ford really puts most of its emphasis on, you turn to the question of what are the risks of double taxation.
And there concededly is language in the Court's opinion that talk about risk as part of Commerce Clause analysis.
But I would like to suggest that it's worth taking a hard look in a case like this at what the risks really are, because risks are very easy to exaggerate.
What do we know about the risk that Ford faced in Michigan, its domicile State, in 1980, 1981, and 1982, which are the years, the taxing years that are in question here?
The first thing we know about them is that in fact the risk of a domiciliary tax didn't materialize.
Michigan did not impose the tax during those years in question.
Second, and more importantly, we know that the risk, at best, because of the nature of Ford's argument, is simply a marginal risk.
Ford has based its argument here solely on the internal consistency clause.
Yet Ford concedes, as it has to, that if in those years Michigan had had a domiciliary tax and Ford... excuse me, and Florida had had a situs tax, so long as Florida didn't itself have a domiciliary tax, the two statutes together would meet the internal consistency test.
So what that leaves Ford with when it talks about risks is essentially an incremental risk, the idea that Michigan wouldn't tax its domiciliary corporations on its own.
It would only do so essentially in sort of a copy cat fashion, because Florida has done so.
And even there, I might suggest, that if Michigan were to consider a domiciliary tax, what you don't have in this case is what you have in so many Commerce Clause cases, the difficulty of an out-of-state corporation facing taxing decisions by a State in which it's not located.
We are talking about the possibility of a tax imposed by Ford's own domicile, where Ford presumably has substantial political power.
Unknown Speaker: Mr. Farr, the test you propose really ends up, doesn't it, to create all sorts of odd incentives for companies to do business in some States or not?
For example, if Michigan should impose a domiciliary tax, it would then be cost free, in effect, since there would be the kind of conflict you acknowledge would have to... would have to disallow... would it be the Florida law that is disallowed in the event of that conflict, or both of them, by the way?
Mr. Farr: Your Honor, I hate to interrupt your question, but I don't concede that one or the other would have to be disallowed.
I would suggest that under the due process cases they both could stand compatibly.
I am saying the Court need not reach that issue in this case, because there in fact are not two taxes being levied.
Unknown Speaker: Oh, you're not even acknowledging that when there are two taxes levied it would be invalid?
I thought you said that we would do it on a case-by-case basis, and that is you showed an actual conflict--
Mr. Farr: Then you would have to decide the issue as to whether both taxes could legitimately be sustained.
Unknown Speaker: --Oh, I see.
Mr. Farr: That, that is the approach the Court took in cases like Curry v. McCanless.
Unknown Speaker: Oh, I see.
If Florida and Michigan had exactly the same scheme, you would argue that both are valid?
Mr. Farr: I would argue that both are valid.
Unknown Speaker: That's what I thought you said a while ago.
Mr. Farr: That's correct, Justice White.
Following the due process cases from the late 1930's and 1940's, I would argue that because of the special nature of a domiciliary corporation and the--
Unknown Speaker: I see.
Mr. Farr: --benefits that the Court has recognized the State gives, that it could indeed have extra taxing power.
But I want to make clear the point I am making here is I do not believe it makes sense to decide that issue in a case where no domiciliary tax on Ford has been imposed.
And that is, I think, the point that Ford is raising.
Unknown Speaker: Well, I suppose that if Michigan had a tax like Florida's on domiciliaries, it would certainly be... it certainly would put a... it certainly would deter, I suppose, a domiciliary in Michigan from doing business in Florida or any other State that had a tax like that.
Mr. Farr: In the sense that it would then be subject to double taxation.
Unknown Speaker: Why, yes, yes.
And if you are going to pay, if you would have to pay two taxes on your intangibles if you went to Florida, you'd stay out of Florida.
Mr. Farr: Your Honor, I think that is a possibility.
I would say that the issues of double taxation, precisely the point that you are making though, is what the Court spent really a decade and a half wrestling with from about 1930 until the early 1940's, exactly trying to draw the kinds of distinctions that you are making--
Unknown Speaker: And never got a fall.
Mr. Farr: --I'm sorry?
Unknown Speaker: And never pinned.
Never, never got... and it never pinned anybody.
Mr. Farr: Well, it came closer to pinning at the end, I think, when it made its second reversal, if I can continue the wrestling metaphor, to say that in fact there was a legitimacy to double taxation of intangibles by both the domiciliary State and the situs State.
Unknown Speaker: Mr. Farr, can I suggest a problem with your approach?
Supposing this challenge had been brought not by Ford challenging the situs aspect of the tax, but by a Florida domiciliary, making precisely the same argument?
And they would say we are subject to a situs... potential situs tax in 49 other States because we are a nationwide credit company.
Would you say they didn't... would you make the same argument to them?
Mr. Farr: No, I would not make the same argument.
As I said, I think even... if the basis of the hypothetical tax is situs, that, it seems to me, is a basis that maybe is sort of--
Unknown Speaker: I see.
It's the fact that the hypothetical tax is the burden on the domiciliary that is what you--
Mr. Farr: --That's correct.
I mean, as I... to me, and perhaps this is a misstatement, but as I see the internal consistency test, it essentially carves out an exception to general constitutional principles of how you approach an attack under... on constitutional ground State statutes.
And it seems to me where there are practical reasons for essentially allowing the tax... the to be based on hypothetical grounds, that maybe the usual practice should yield.
But I don't see it in the case where the hypothetical tax is the domicile.
I would like to just say one more thing about the subject of risk, again because I think Ford has given it considerable emphasis.
The... you know, we certainly don't disagree that there was this marginal risk that I mentioned before, this incremental risk that Ford might be subject to tax by Michigan.
But when we are talking about that as a basis for challenging the Florida statute, it does seem appropriate to remember that the Florida companies, the competitors that Ford keeps talking about, not only pay tax on exactly the same intangibles in Florida as did Ford, but in fact were subject to a real tax, not a hypothetical tax, on their intangibles in 49 other States.
And one question I suppose I would raise here is, for all their talk about multiple burdens and discrimination and lack of allocation, is there any reasonable likelihood that in 1980, 1981, or 1982 Ford would have changed places with the Florida domiciliary corporations insofar as taxes on intangibles were concerned?
That is usually the question that comes up in any Commerce Clause case, or at least something that underlies it, when you say that our competitors are being advantaged here.
But we submit that there is no way that Ford would have said we would rather be treated as a Florida domiciliary, in fact, and we were treated as we were.
Unknown Speaker: --Mr. Farr, are there any Florida cases pending in which a Florida domiciliary has challenged this tax?
Mr. Farr: Not to my knowledge, Justice Stevens.
I would like to make one final point on the question of the particular type of inquiry here.
Ford again concedes, as I think it must, that so long as Florida took action that met internal consistency, it would not be necessarily entitled to a refund.
In Tyler Pipe this Court pointed out that any problem with internal consistency in that case could be solved for out-of-state manufacturers by providing a credit against the out-of-state tax on the tax levied by the State of Washington in that case.
Assuming that Florida could do the same thing here, and we don't see any reason why they couldn't simply to achieve the consistency that Florida is talking about, ultimately that credit would do Ford no good whatsoever.
It has nothing in fact to credit from its domiciliary State.
So to the extent that there is a superficial difference because a Florida corporation arguably gets a credit against one tax and only has to pay once, even if Florida applied exactly the same rule to Ford, there would be no difference whatsoever in the judgment that is in front of the Court at this point, the judgment that says they owe the taxes for 1980, 1981, and 1982.
If the Court has nothing further, thank you.
Unknown Speaker: Very well, Mr. Farr.
Mr. Evans, do you have rebuttal?
Rebuttal of Mark L. Evans
Mr. Evans: Let me just start where Mr. Farr left off on credits.
This is an issue that was discussed as well in Tyler Pipe, in which the Court specifically said that credits might be a solution.
And in fact the... the complaining parties in Tyler Pipe, if a credit had been provided, would have likewise, at least prospectively, been arguably no better off than they were before they came to Court.
On the question of refunds, we have not conceded anything.
That's not an issue that's here at this point.
It's a matter for remedy that the Court has spelled out, and the contours of which from a constitutional standpoint the Court has spelled out recently in McKesson.
We are not in a refund posture.
We're here under an assessment.
We have not paid the tax, we have posted a bond for it.
We have paid a portion of the tax, and we are not suing for refund of that.
So we are not even in a refund posture.
Insofar as a retroactive or retrospective remedy, we think it's something that ought to be dealt with by the Florida courts, and in fact the Florida courts have at least some cases suggesting that a taxpayer is not required to pay a tax under a statute declared unconstitutional.
Unknown Speaker: Counsel, is it possible to speculate that these intangibles are included in some overall tax schemes of other States, general property tax?
Mr. Evans: Well, I think there--
Unknown Speaker: And so that it would follow from that that Michigan has foregone... has foregone to levy on these in lieu of its tax?
Mr. Evans: --Well, I think to a certain extent that may be, that may be right.
And it, it reminds me, Justice Kennedy, of a point that I believe was in Justice Stevens' concurring opinion in the Goldberg case, which is that the fact that one State cedes or declines to adopt a tax doesn't mean that somebody else can take that State's share.
I think that in... there are about half of the States that, at least as we have identified in a rough survey, that have some form of intangible taxation.
About five or six of them, or so, look pretty much like Florida's.
They have a... looks on the face of it at least to be an internal inconsistency, taxing both on the basis of domicile and on the basis of... or alternatively on the basis of business situs.
A couple of them choose one or the other, and then there are a large category that is just not decipherable in the face of the statute what they do.
But clearly, intangible values are taxed elsewhere, and it may be that Michigan chooses to require its domiciliaries to pay their share of State and local services that are provided within the State to domiciliaries in some other form, rather than an intangible property tax.
Clearly this is not a free ride for Ford Motor Credit Company, and it ought not to be a... an opening, in effect, in the line for Florida.
I... now... Mr. Farr seems to have said something that was also in the brief that I just want to address briefly.
The notion that the Court's decisions in the 1940's, late 1930's and 1940's, on due process grounds bear on the issue here, we think is really quite far fetched.
Those cases were due process cases where the issue was one issue only, namely did a nondomiciliary State have the jurisdiction to tax property owned by... that was in the State but that was not owned by one of its own domiciliaries, and the answer to that question was yes.
There was never any consideration in those cases about multiple taxation, because the issue was a due process issue, and not an interstate... impeding of interstate commerce issue.
The fact is that the one time when the author of the key opinion, Chief Justice Stone, addressed the issue, he specifically said, and we quoted this in our reply brief, which I am not finding right now, this was in his dissenting opinion in Northwest Airlines at 332 U.S. He said, in response really to an argument that Mr. Farr has made, that yes, domicile can be important and it can give a basis for State taxation of intangibles that might otherwise not be available in the case of tangible property.
But then he goes on to say that the taxation of intangibles of interstate companies is subject to the rule of apportionment, wherever the tax--
Unknown Speaker: Where is this?
Mr. Evans: --I'm--
Unknown Speaker: Where is this from?
Mr. Evans: --I'm sorry.
This is on page 15 of our reply brief.
He is saying that the taxation of intangibles, when it's... when they are owned by interstate companies, is subject to the rule of apportionment, wherever the tax without it would subject the commerce to the burden of multiple State taxation.
And to suggest that double taxation is permissible on some domiciliary hearing when you are talking about interstate commerce strikes me as quite... quite bizarre in the current--
Unknown Speaker: Let me, let me ask you, supposing we're talking about tangibles instead of intangibles--
Mr. Evans: --Yes.
Unknown Speaker: --talking about real estate.
Could a Florida resident be taxed on real estate owned in Illinois or Michigan?
Mr. Evans: No.
Unknown Speaker: He could not?
Mr. Evans: Oh... by Florida.
Unknown Speaker: By Florida.
Mr. Evans: No.
It could not.
Unknown Speaker: It could not be taxed on its out-of-state wealth.
Mr. Evans: That would be... I mean, I think that's pretty settled in the Court's decisions.
In the area of real property you can only tax what is within your borders.
Unknown Speaker: Mr. Evans, several of us don't seem to have the reply brief here on the bench.
What was the case you were reading from?
Mr. Evans: This was Chief Justice Stone's dissenting opinion in Northwest Airlines, which is in 332 U.S., and the quote I was reading to you was at page 318.
It was in response to an argument that, very much like Mr. Farr's, that multiple taxation is all right when you are dealing with taxation by domicile States, and we're talking about... in that case we're talking about airlines and tangible property.
But there was reference made to intangibles in his response.
Unknown Speaker: This was 332 U.S.?
Mr. Evans: 332 U.S., and this was at page--
Unknown Speaker: Chief Justice Stone?
Mr. Evans: --Chief Justice Stone.
Unknown Speaker: I thought he was dead by then.
Mr. Evans: Well, I think the citation is--
Unknown Speaker: Okay... we can check it out.
Mr. Evans: --I will double check it.
We missed... cite checkers missed it.
In response to the argument he also cited a number of other cases dealing with, and these are also cited at page 15 of the reply brief, a number of other cases that did deal with the possible problem of multiple taxation of intangible property, going back... back again into the 19th century.
Now, Mr. Farr said that the risk that we face would... we would still face even if, even if the State abandoned its domicile tax, as he suggested, and left in place simply a business situs tax applicable to everybody.
And that's true.
We would face a risk.
It would be a slightly different risk, and while it would look the same, it would offer different opportunities.
At least we would have an opportunity, or a company with a domicile outside the State would have an opportunity to change domiciles if its own domicile State adopted a domiciliary tax.
In that event it would pay no tax in Florida, because Florida doesn't have a domicile tax, and it would pay no tax in the State it used to be domiciled in because it has no business situs tax.
Furthermore, firms generally, although individual firms might face risks and might be hurt, firms generally, on balance, operating in interstate commerce would fare about as well as those operating in intrastate commerce.
Because, as I say, while some might ultimately have to pay two taxes, others will get away with paying none.
And finally, while there... it is true that there is a limit beyond which the Court can't go, consistent with principles of federalism, we cannot tell Florida that it cannot adopt a... an internally consistent tax on the basis of business situs or domicile simply because Michigan chooses to adopt a different internally consistent tax on a different basis.
That's the irreducible minimum required by principles of federalism.
But we can tell Florida that it cannot adopt an internally inconsistent statute that enhances the risks beyond those that are the minimum necessary to preserve federalist principles.
One final comment.
We have been... the Court has been debating questions of internal consistency now actively for almost a decade.
Almost every argument that has been presented in the briefs here has been thoroughly debated in the prior decisions of the Court.
There is no distinction, no distinction that we can see in principle between applying the test here and applying the test in the cases that have already been decided.
To whatever extent there is any difference, we think it's an easier case here, because we are dealing with a property tax, where assets have one value, much like income does.
But in any event, it's time for some stability in the law.
It's an issue that is constantly in play.
And the Court has now decided five cases since 1983 in which it has indicated that internal consistency is a special test to screen for defective State taxes.
It has been a hotly debated issue, but it is now, I think, time to settle it and leave it in place.
States ought to begin to deal with this test, which is not difficult for them to apply, is not onerous with respect to their options, and which ought to be dealt with by the States that way rather than as another opportunity for litigating Commerce Clause issues.
Chief Justice Rehnquist: Thank you, Mr. Evans.
The case is submitted.
Argument of Speaker
Mr. Farr: I have the opinion of the Court to announce in No. 88-1847 Ford Motor Credit Company versus the Department of Revenue of the State of Florida.
The judgment of the Court of Appeals of Florida is affirmed by an equally divided court.
Justice OConnor took no part in the decision of the case.