ASSOCIATED INDUSTRIES OF MISSOURI v. LOHMAN
Following Missouri's imposition of a 1.5% statewide "use tax," the Associated Industries of Missouri - representing Missouri businesses that had to collect the tax and a manufacturing firm that had to pay it - filed suit alleging that the tax violated the Commerce Clause by discriminating against interstate commerce. Such discrimination was said to result from the fact that the use tax exceeded many in-state localities' sales tax rate.
Does Missouri's use tax violate the Commerce Clause by discriminating against interstate commerce in those localities where the use tax exceeds the local sales tax?
Legal provision: Article 1, Section 8, Paragraph 3: Interstate Commerce Clause
Yes. The Court held that the use tax was discriminatory in those localities where it exceeded the local sales tax. Such discrepancies, between certain localities' sales taxes and the state use tax, prevented the latter tax from being a valid "compensatory" tax, since it obviously did not impose a "substantially similar" burden on the interstate and intrastate commerce of such localities. The Court added that in those localities where the use tax did not exceed the local sales tax, no discriminatory treatment resulted and so the use tax's application would not be struck down in its entirety. Instead, the Court remanded the case back to Missouri for a decision on how to best correct certain of its localities' existing tax discrepancies.
Argument of Thomas C. Walsh
Chief Justice Rehnquist: We'll hear argument next in Number 94-397, the Associated Industries of Missouri, v. Janet Lohman.
Mr. Walsh: Mr. Chief Justice, may it please the Court:
This case is a Commerce Clause challenge to section 144.748 of the revised statutes of Missouri, which imposes an additional use tax of 1-1/2 percent on all goods purchased from out of State for use, storage, or consumption in Missouri.
Now, the Missouri overall taxing scheme is thus as follows.
There is a 4.225 State-wide sales tax.
There is a 4.225 equivalent State-wide use tax.
The challenged statute adds an additional 1.5 percent use tax to be charged across the State on all transactions from out of State.
There is no corresponding additional sales tax State-wide.
Cities and counties and other municipalities within the State, however, are authorized to enact local sales taxes with the approval of the voters.
There is no authority for any such local use taxes.
Now, the result of this unusual statutory scheme is a patchwork taxing scheme within the State of Missouri that has 22 different local sales tax rates, ranging from zero percent in several counties to 3.5 percent in one city, and bear in mind that throughout the whole State, the 1-1/2 percent additional use tax is applicable, so the total use tax applicable throughout the State of Missouri is 5.725 percent.
Unknown Speaker: Is there any correspondence, Mr. Walsh, between the size of the local sales tax and the population of the taxing jurisdiction?
Mr. Walsh: Not directly, Your Honor.
Some of the higher sales tax rates are in the larger cities, and some of those that have no additional sales tax are the smaller rural communities, but there's no... you can't really draw a specific correlation.
Unknown Speaker: Mr. Walsh, at one time was there a provision that said if a local community imposes an additional sales tax of its own, that it would impose an equivalent use tax at the same time?
Mr. Walsh: There was a provision, Justice O'Connor, in 1990, right before this particular law became effective.
Unknown Speaker: Had that been adopted by the legislature?
Mr. Walsh: Yes, it had.
Unknown Speaker: Did it ever go into effect?
Mr. Walsh: --Well, it was on the books for about a year, but it was never implemented.
Unknown Speaker: Had that been implemented, would you be here?
Mr. Walsh: Not at all, Your Honor.
I... we have no quarrel with that kind of--
Unknown Speaker: Why was it not implemented?
Why was this shift made?
Mr. Walsh: --The record doesn't really show that, Your Honor, except that a) the state thought it was easier, apparently, to do it the way that it eventually decided to do it, and b) I think there was probably some concern about whether local voters would actually adopt a local use tax.
Unknown Speaker: Is that the method employed in some other States that allow local imposition of additional sales tax?
Mr. Walsh: The record shows, Your Honor, that there are 28 States that allow local use taxes, and every one of them has some sort of mechanism which prohibits the local use tax from being greater than the local sales tax.
Missouri is the only State that has adopted this kind of a scheme, except back in the seventies, Oklahoma tried it, and the Oklahoma statute was invalidated by the Oklahoma supreme court under the Commerce Clause, a scheme very similar to this one, but we did have--
Unknown Speaker: But the National Conference of State Legislatures is amicus on the other side.
They would like it.
Mr. Walsh: --Very much so, yes, Your Honor.
They would like to experiment with use taxes and to avoid the strict rule of equality that has pertained to use taxes since this Court started deciding these kinds of cases.
Unknown Speaker: Mr. Walsh, I may be repeating what Justice O'Connor asked you, but I want to be sure.
You are attacking section 144.748, aren't you?
Mr. Walsh: --Yes, Your Honor.
Unknown Speaker: You are not attacking the local delegation power.
Mr. Walsh: The local delegation of sales taxes--
Unknown Speaker: Yes.
Mr. Walsh: --Your Honor?
No, we're not.
The statute that we're attacking imposes the additional 1-1/2 percent across-the-board, State-wide use tax.
It's contained in a separate--
Unknown Speaker: It's the latter that causes the difficulty here.
Mr. Walsh: --That's the statute that causes the difficulty, and it's a self-contained statute.
We're not even attacking the basic 4.225, basic use tax, which is equivalent to the State-wide basic sales tax.
It's the add-on that causes the problem.
Unknown Speaker: It's the combination of the use tax exceeding the sales tax.
Mr. Walsh: Yes, it is, Your Honor, but the excess 1.5 is in a separate statute, and it could be invalidated without affecting the base.
Unknown Speaker: It is true, is it not, that the scheme that you said you would not challenge in response to Justice O'Connor, if all of the local jurisdictions in fact added on a use tax, would have netted more money rather than less.
You had a line in your brief about Missouri attempting to swell its coffers at the expense of interstate commerce, and yet the scheme that you say would be constitutional could have netted the State more.
Mr. Walsh: Well, it could have, if the local municipalities had adopted it.
One of our objections to this is that the State tried to preempt the local option by imposing this use tax at the State level, and I think it's just a matter of supposition whether the local municipalities would have gone along with a local use tax in all situations.
Unknown Speaker: Well, if we accept your submission, we would not strike down any provision of Missouri law across the board.
For instance, you have no grounds of complaint, as I understand it, about the situation in Kansas City, or perhaps Jackson County, or the City of St. Louis.
Mr. Walsh: Well, the statute, though, that creates the problem, Your Honor, is 144.748.
That is a statute applicable State-wide.
Unknown Speaker: But--
Mr. Walsh: It does not produce equality State-wide.
Unknown Speaker: --Well, but you have to show that it produces a higher use tax than sales tax in a particular jurisdiction.
You can't show that with respect to Kansas City or with respect to the City of St. Louis.
Mr. Walsh: But you can't... I respectfully submit, Your Honor, you can't take averages, as the State wants to do.
You have to look at this tax as it operates in the marketplace--
Unknown Speaker: But--
Mr. Walsh: --In all the marketplaces.
Unknown Speaker: --But you have to look at it with respect to each of the taxing jurisdictions.
What complaint do you have about the situation, say, in Jackson County?
Mr. Walsh: The fact is that this is a State-wide statute.
Unknown Speaker: In mean... but answer my question.
Mr. Walsh: Well, insofar as--
Unknown Speaker: What complaint do you have about the situation in Jackson County?
Mr. Walsh: --Insofar as the... the sales tax in Jackson County is higher at present time than the use tax, there is arguably no damage from the discrimination in Jackson County.
Unknown Speaker: And the same is true in the City of St. Louis, is it not?
Mr. Walsh: It... I believe the sales and use tax are equal in the City of St. Louis, but in... out of... in 841 out of 1,573 jurisdictions in the State of Missouri, the use tax is higher than the sales tax--
Unknown Speaker: Mr. Walsh, why--
Mr. Walsh: --and that's because... excuse me.
Unknown Speaker: --I agree with you that the State statute appears to be the problem, and perhaps your remedy for the future is that that statute is invalid, but as far as collection of taxes past paid, is it your assertion that anyone, no matter where those taxes were paid, whether in Kansas City or anywhere else, is entitled to a refund?
Mr. Walsh: Yes, Your Honor, it is, because the State statute has created the discrimination.
It can't be severed.
Unknown Speaker: Well, why not, Mr. Walsh?
Why wouldn't it be an adequate remedy to simply say the Constitution prohibits the enforcement of the statute in those jurisdictions where it produces a higher total than produces any discrimination?
Mr. Walsh: --Well, I guess that would be some sort of a geographical severance type article.
Unknown Speaker: Yes, sure.
Mr. Walsh: But the statute is a... it imposes a 1-1/2 percent use tax in... everywhere, to every transaction.
Unknown Speaker: I understand that, but there's nothing wrong with the collection of it in Jackson County, for example.
It's only those jurisdictions in which you have this disparity running in one direction.
I don't know why your remedy wouldn't be adequate to just say it cannot be enforced in those jurisdictions.
Mr. Walsh: But that assumes, I think, that the legislature had some intent that it would apply where it's legal and not apply where it's not legal, and the next--
Unknown Speaker: It would assume the Federal Constitution just requires correction of Federal constitutional violations.
It doesn't require a windfall.
Mr. Walsh: --But you can't analyze the statute that way, because every year, it changes.
Unknown Speaker: Why wouldn't that be a question of State law?
I mean, if the... your argument on Federal constitutionality is you can't have a higher use tax than sales tax.
If this Court just says that, then why isn't the State free to say, our statute stands to the extent that it doesn't violate that constitutional requirement?
Mr. Walsh: --Well, I think that... I think it's primarily, first of all a question of Federal constitutional law, because the--
Unknown Speaker: Constitutional law where the use tax higher than a sales tax is no good.
Mr. Walsh: --Right.
Unknown Speaker: Once that proposition... if that proposition is decided in your favor, then why shouldn't the rest... what happens next, excepting that premise, be for the State to determine?
Mr. Walsh: Well, I think the Court has to make a determination, looking at this statutory scheme as a whole, whether there is any basis, whether in State or Federal law, for severing offending parts of this statute and salvaging the rest.
Unknown Speaker: Yes, but you keep speaking of offending parts of the statute.
The question of severance is offending taxing jurisdictions, and how those particular taxing jurisdictions reach the point of offending seems to me is a question of State law.
It's the result which is a question of Federal law.
Why do we not, in order to rule your way, simply declare the disparity is unconstitutional, leaving it to State law to unscramble the eggs any way it wants to in order to get the required result?
Mr. Walsh: Because I think that the issue of facial discrimination here makes the entire scheme unconstitutional.
Unknown Speaker: The facial discrimination is... I was going to say the bottom line.
I guess it's the top line.
That's where the discrimination is.
I don't see where it becomes a Federal question to identify whether one element of a complex State tax scheme is the particular culprit as distinct from the unconstitutional result that all of those elements produce.
Mr. Walsh: When you have a 1-1/2 percent across-the-board additional use tax that is applied by the State in every situation, that offends the Commerce Clause, because--
Unknown Speaker: No.
It only offends the Commerce Clause because it's being added on to two other layers of tax, one of which is within the control of particular counties and municipalities.
Mr. Walsh: --But at the State level you have 4.225 sales tax, you have 5.725 use tax, and that is... that is the scheme that is being delivered to the counties, the municipalities, the cities, and--
Unknown Speaker: Are you telling us that in order for you to win your case we have in fact got to, as it were, tell the State how to unscramble the causes that bring about this top line violation?
Mr. Walsh: --Our position is that within--
Unknown Speaker: Well, yes or no.
Yes or no.
Mr. Walsh: --Yes, because... because our position is that within a single taxing jurisdiction, within any State, if a use tax exceeds a sales tax, that violates the Commerce Clause.
That inhibits interstate commerce.
Unknown Speaker: Yes, but you mention the word severability.
I don't understand why the severability question isn't for the State to decide.
If it were a Federal law, yes, it would be for this Court to decide.
Mr. Walsh: But the disparity is created by the facial difference at the State level between sales tax and use tax.
Unknown Speaker: Suppose that every county were like Kansas City and Jefferson County, and that there were no disparities because the counties in every instance adjusted their laws so that the sales and use tax were equal.
Would there be a violation of the Constitution?
Mr. Walsh: That would be statistically improbable, but the facial problem that exists with regard to the overall statute would still exist.
There might not be any discrimination in fact.
Unknown Speaker: Well, could you bring a suit in those circumstances?
Mr. Walsh: I might not have any injury, but I... no, I probably couldn't.
Unknown Speaker: So if one county, or one municipality, then deviates, then the entire statutory scheme falls?
Mr. Walsh: No.
The problem is that there's no compensation.
There's no compensatory tax rate in the sales tax area that you can point to for which this use tax supposedly compensates.
Now, the theory... the only theory that the State has here is that this is a complementary, compensatory use tax, but where is the tax for which it compensates?
It's not at the State level, and I don't think this Court has ever upheld a system whereby one sovereign can enact a tax, pass a tax that discriminates against interstate commerce and rely on some other sovereign--
Unknown Speaker: But you're assuming that we're deciding a question of State sovereignty.
Isn't it the State's business to decide how it's going to, as it were, allocate its governmental taxing power?
Don't we simply look to the State as a whole and ask what the result is?
Mr. Walsh: --The State may allocate taxing responsibility, but it's our position that if the State is going to create a compensatory use tax system, then either it has to do so at the State level, or it has to do so... it has to delegate to the municipalities the right to do so, and require that any use tax be no greater than any sales tax.
Unknown Speaker: Well, what's your authority for that proposition, Mr. Walsh?
Now, it would be something about the structure of State Government.
It certainly has nothing to do with interstate commerce.
Mr. Walsh: Well, it has to do with the requirement of Halliburton, of Silas Marner, that... Silas Mason.
Unknown Speaker: Good book.
Mr. Walsh: --that the use tax, because of its inherently discriminatory and protectionist nature is allowed, but only under very restricted circumstances, and the law is that you must... in building in a use tax you must provide that local and out-of-State sellers are treated equally, local and out-of-State goods are treated equally, and, as the Court said in Boston Stock Exchange, a use tax is only valid if a purchaser, looking at the options between buying in-State and buying out-of-State can make that decision without regard to the tax consequences.
Unknown Speaker: Now, those are all Commerce Clause principles.
Mr. Walsh: Yes.
Unknown Speaker: But you're urging here something that I don't think has ever emerged in any of our commerce cases or any other case, and that is that somehow the State has to handle it all itself, and you don't look at the net result between taxing authorities and the State, but there's some principle that requires the State to do certain parts of it and the counties to do a certain part of it, and we have many cases saying that the State can divide up its authority the way it wants to.
Mr. Walsh: The question... the ultimate question in the case, Your Honor, is, is this a compensatory tax, because a use tax, if it's not a compensatory tax, is prima facie violative of the Commerce Clause.
Its only purpose is to protect local industry and, by definition... by definition it discriminates against interstate commerce, so where is the compensating sales tax that this act is designed to protect local merchants against, and at--
Unknown Speaker: It's in St. Louis, certainly, and it's in Jackson County.
You've agreed to both of those.
Mr. Walsh: --But it's a lot of places... there's a lot of places where it isn't, and it isn't a tax that compensates for the use tax.
It is a range of 22 different... a hodge podge of 22 different local sales taxes.
Unknown Speaker: Well, but that's true in lots of jurisdictions, that you have a State sales tax, and then you have also a local sales tax.
Mr. Walsh: No--
Unknown Speaker: Certainly you're not attacking that principle.
Mr. Walsh: --No sales tax... no use tax, sales tax arrangement has every been upheld, to my knowledge, where there was a difference within a taxing jurisdiction... any taxing jurisdiction--
Unknown Speaker: But wouldn't you agree that you would have no constitutional claim if the cities were all allowed to impose sales taxes of at least 1-1/2 percent, and there was a hodge podge of those from 1-1/2 percent to 5 percent?
Then you wouldn't have any claim, would you?
Mr. Walsh: --If they were required to, as--
Unknown Speaker: Required to have a minimum of 1-1/2 percent.
Mr. Walsh: --And you had an across-the-board use tax--
Unknown Speaker: But a hodge podge above 1-1/2 percent, and the hodge podge does not mean anything, does it?
Mr. Walsh: --Well, it means that within 841 jurisdictions in the State of Missouri, the use tax is higher than the sales tax.
Unknown Speaker: --No, no, no, I'm assuming that it can't be, that you have a 1-1/2 percent--
Mr. Walsh: If you mandated a minimum of sales tax--
Unknown Speaker: --On the sales tax, yes, of 1-1/2 percent.
Mr. Walsh: --Then I think you could point to that use tax as compensating for that minimum.
Unknown Speaker: For the minimum, and the hodge podge and the excess would be constitutionally irrelevant.
If there's a hodge podge all by itself, it doesn't mean anything.
It's just that there is some jurisdictions in which that there is a lack of total compensation.
Mr. Walsh: Well, the gross disparity from jurisdiction to jurisdiction is unprecedented.
Unknown Speaker: I understand it's unprecedented, but you seem to agree... at least, I think you do... that if you had the same gross disparity but the minimum of 1-1/2 percent, there would be no problem.
Mr. Walsh: --I think an argument could be made under those circumstances that that was a compensating use tax, but I don't find in this case anything that can be pointed to as a compensating sales tax, the tax for which--
Unknown Speaker: Well, it compensates for 1-1/2 percent in Jackson County and St. Louis.
Mr. Walsh: --But that's not what this use tax was designed to compensate for.
Unknown Speaker: Well--
Mr. Walsh: The State just decided they wanted to do it a different way, and there isn't any reason they couldn't have done it the right way.
As a result, there are 26 percent of Missouri citizens who live in areas where the use tax is greater than the sales tax, and that's because of this statute.
That's 1,300,000 people, who when they decide to buy an appliance from the J. C. Penney catalogue store are going to pay a higher use tax than if they went down to the corner and bought the same--
Unknown Speaker: --So your proposition is that a use tax discriminates against interstate commerce unless in all instances it compensates for a State sales tax.
Mr. Walsh: --For a sales tax, yes and that's what this Court has held, Justice Kennedy.
That... Silas Mason said, equality is the theme that permeates this--
Unknown Speaker: Even though in some cases, in some counties, where there's a larger population, larger percent sales, interstate sales can be said to be preferred because the total tax burden on them will be less.
Mr. Walsh: --There is a... in some counties there is a higher sales tax than a use tax, that's correct.
Unknown Speaker: Though in those cases you can say the discrimination is in favor of interstate sales.
Mr. Walsh: That's what the State argues, but I... you can't discriminate in some areas of the State and say, well, we're sorry about that, but we're making it up over here in Kansas City.
Unknown Speaker: Well, that's the question.
Mr. Walsh: Well, yes, and I don't think--
Unknown Speaker: If you say, can you... if you look at it, the whole picture, interstate sales are being favored, but in particular counties in-State sales are favored.
Mr. Walsh: --Well... and I don't know that they're being favored, but there are more sales taxes being collected than if the uniform sales tax rate were 1.5 percent, but the State says, well, we have the right to charge more over here and less over here, but that leads to exactly the kind of trade, or potentially to the kind of trade wars that the Commerce Clause is designed to prevent.
What, for instance, would prevent the State of Missouri from enacting large use taxes around the perimeter of the State to frustrate citizens from going across the border and buying goods and having no use taxes in the center of the State?
That's what they want the right to do.
They even would support by their argument a State statute which authorized the enactment of local sales and use taxes by the local municipalities with no correlation to each other.
They would say that any municipality could have a sales tax here--
Unknown Speaker: Well, you're saying a lot of things that they would say, but I haven't heard it from them.
I thought their whole point was, it's the collection of this is a nightmare if we do it by how much each locality puts on, so we're trying to make it simple, and we're simplifying it in a way that overall interstate commerce is not being disadvantaged.
If anything, the interstate... doing... looking at the whole picture, the interstate sales are being taxed less.
Mr. Walsh: --Well, first of all, Justice Ginsburg, administrative convenience is not an excuse for a violation of the Commerce Clause, and the courts have been uniform in holding that, but you can't look at averages around the State and say, it comes out with more sales tax than use tax.
Commerce is conducted in the local marketplace, in the counties, in the cities, and the highways and byways, where individuals are making decisions about what goods to buy and from where, and where merchants are being required to compete against people from out of State, and the State of Missouri has created a situation whereby in more than half of the areas of the State, the interstate vendors are being disadvantaged.
Unknown Speaker: Well, Mr. Walsh, you say half the areas of the State.
Now, the respondents in their brief say that 92 percent of all taxable transactions in the State carry a sales tax rate equal to or greater than the average use tax rate.
Do you disagree with that?
Mr. Walsh: That... no.
That number was found by the trial court, but that relates to the sales being made in-State, not to the use tax analysis, which frankly isn't developed in the record, but what is developed is that 26 percent of the population live in areas where they pay higher use tax than sales tax, and that's not anybody's fault except the State of Missouri.
Unknown Speaker: I guess what you're saying is that a more relevant figure is what percentage of out-of-State sales are made in jurisdictions that charge less than the offsetting sales tax.
Mr. Walsh: Yes, and--
Unknown Speaker: And we don't know that.
Mr. Walsh: --We don't know that, but we know that 1,300,000 people live in areas where, if they buy from out of State, they're going to pay more.
Unknown Speaker: Do you have any answer, other than administrative inconvenience is no excuse, to the argument that, well, if you do this to us as a practical matter, we can't leave it to local option?
Is there any convenient way to allow local option?
Mr. Walsh: Oh, absolutely.
Unknown Speaker: And you collect the tax.
Mr. Walsh: Absolutely.
Section 144.747, the repealed statute that Justice O'Connor questioned me about, did it the way that every other State in the Union does it.
That is, it says... the State says to the local municipality, you may enact a sales tax.
You may also, at the same time, enact a use tax.
Unknown Speaker: But what you have to do is restrict local option to this extent Sales and use tax have to go hand-in-hand?
Mr. Walsh: Yes, unless you impose them both at the State level.
Yes, Your Honor.
I'd like to reserve the rest of my time, please.
Unknown Speaker: Very well, Mr. Walsh.
Mr. Downing, we'll hear from you.
Argument of Don M. Downing
Mr. Downing: Mr. Chief Justice, and may it please the Court:
What petitioners would have this Court do is invalidate a State compensatory tax system that substantially favors interstate commerce overall.
Well, this Court's never been willing to do that, for good reason.
To do so--
Unknown Speaker: Wait, I'm not sure that that's true.
Do you mean that a State can have a blatantly unconstitutional tax upon interstate commerce coming into one county and the State say no, but anybody who does business in this county from out of State shall pay $1,000 a day, so long as that is offset by beneficence to interstate commerce in other sections of the State, and you look on the balance and say, well, on balance, you know, the business in this county is being discriminated against, but they're really good to interstate commerce elsewhere.
Is that the argument you say we--
Mr. Downing: --Your Honor, certainly there's ample precedent in this Court's cases... the Bacchus case, for example.
Unknown Speaker: --For that, you say yes, that's okay.
Mr. Downing: No... Your Honor, I'm saying in terms of, if the purpose for that county's action was to protect the local market segment, or an industry, if we're getting into the Bacchus situation where there's an identifiable market segment, that's one issue, but this Court's Commerce Clause cases have looked historically at the overall effect of State regulation on the national economy.
As the Court said in the Exxon case, the Commerce Clause is designed to protect the interstate market, not particular interstate firms.
Unknown Speaker: So you... does that mean your answer to my question is, that is okay?
Mr. Downing: If one county enacted a... decided to have no sales tax in order to benefit local businesses, that would be okay, as long as the overall effect of State regulation on the national economy was either neutral or pro interstate commerce, like it is here.
Unknown Speaker: One county can impose a $100 fee on people doing business in that county from out of State, so long as other counties give people doing business a rebate, in equivalent dollar amount?
Mr. Downing: I think that's a different situation, Your Honor, because that's not a compensatory tax case.
In the compensatory tax area, this case is analyzed differently from... for example, I think the hypothetical you're talking about is somewhat similar to the Fort Gratiot case the Court decided 2 years ago, where a local county had an environmental regulation in which it decided it was not going to accept out-of-State waste.
Well, all the other counties in the State treated out-of-State waste evenhandedly.
They treated them just like it was in-State waste, so the net effect of Fort Gratiot, just like I think in the hypothetical you're pointing out, the net effect was an overall burden to interstate commerce.
Every county was treated equally.
One county was discriminating... net, overall burden.
Well, here, the parallel to this case--
Unknown Speaker: Wait, before you get off that one, what you're saying is, if the other counties had favored out-of-State waste, that would be okay, So a State can pass a law saying, the eastern half of our State, no out-of-State waste is allowed.
The western half, we favor out-of-State waste, so all out-of-State waste has to go into the western half, and none of it can go into the eastern half.
A State can say that--
Mr. Downing: --I think that--
Unknown Speaker: --so long as the net effect is pretty good.
Mr. Downing: --I think the Court could conclude, certainly, that that was not isolationist, that the State was trying to... not to--
Unknown Speaker: Oh, we could conclude anything we want.
I'm asking you, is it constitutional or not?
Mr. Downing: --Well, it's not a compensatory tax case.
Environmental cases, the Philadelphia v. New Jersey--
Unknown Speaker: Is it constitutional or not?
Mr. Downing: --Yes, I think it could be.
I think it could be, under the Philadelphia v. New Jersey case, and under the Chemical Waste case and Fort Gratiot.
Environmental regulations have been treated differently by this Court than compensatory tax cases.
Unknown Speaker: We can split up a national market.
We just have to do it in a checkerboard pattern, with each square on the checkerboard being less than an entire State.
Mr. Downing: Your Honor, as long as this Court... the Court 2 years ago pointed out in Quill that unlike the Due Process Clause which is concerned with the effect on individuals and particular firms, the Commerce Clause is not concerned about particular interstate firms, it's concerned about the overall effect of State regulation on the national economy.
Unknown Speaker: Why do you say that?
What is your support for that?
We don't care what you do to any individual in interstate commerce so long as the overall effect isn't bad.
What is your authority for that?
Mr. Downing: --Well, the Exxon--
Unknown Speaker: I find that astounding proposition.
Mr. Downing: --The Exxon case specifically held that.
It was a situation in which you had three interstate firms that were petroleum refiners, and the State there prohibited petroleum refiners from having a gasoline station in their State, allegedly to protect local gasoline dealers.
They didn't want the Exxons and the Amocos coming into their State, and the Court held in Exxon that the mere fact that three interstate firms suffered a net competitive disadvantage as a result of the State statute doesn't matter under the Commerce Clause, because it said, and I quote,
"The Commerce Clause protects the interstate market, not particular interstate firms. "
Unknown Speaker: But you're dealing with a provision that is not facially discriminatory there.
The examples I've been giving you are examples where on its face the statute discriminates against interstate commerce.
I want a case like that, in which where there is such facial discrimination we say, that's okay, so long as somewhere else it's balanced off.
Mr. Downing: Well, Your Honor, I think it turns on how you define what discrimination against interstate commerce is.
Here, Missouri's system substantially favors interstate commerce overall.
If you define discrimination on a transaction-by-transaction or firm-by-firm approach, I would agree with you.
If you define it on an overall level--
Unknown Speaker: Well, how about county-by-county or city-by-city, and clearly, in a good many communities there, there is facial discrimination.
I mean, there it is.
You have to accept the case on that theory and then tell us how we deal with it and what you rely on, other than that general acceptance case.
Mr. Downing: --Well, in terms of a compensatory tax, the State was attempting to compensate.
Mr. Walsh raised that there was nothing for the State to compensate for.
Well, in Maryland v. Louisiana, and Tyler Pike, the analysis for a compensatory tax, you look at... you try... the first step is to identify the burden.
Not the tax, but the burden for which the State is attempting to compensate.
Well, here it's plain.
The State was attempting to compensate for the effect of the varying local taxes upon intrastate commerce.
It did that by setting a use tax rate, State-wide, which is 20 percent less than the average local tax rate.
In Missouri, Missouri businesses are at a 20-percent net competitive disadvantage to interstate firms selling to Missouri residents.
Unknown Speaker: You had a scheme in 1990, one that Justice O'Connor mentioned at the outset of this argument, that wouldn't raise any constitutional questions but it was never implemented.
Can you tell us why that scheme was abandoned and this uncommon one adopted in its place?
Mr. Downing: Your Honor, I think Missouri found a better way to accommodate the practical needs of interstate sellers.
Interstate sellers... as this Court is well aware from the Quill case, interstate sellers don't like the varying local rate solution, because it is extremely burdensome for them.
To determine for every transaction they sell into the State of Missouri, there are over 1,000 taxable jurisdictions.
They would have to determine for each transaction the applicable current use tax rate for that transaction.
So that's one reason, and it wasn't... Missouri didn't do this out of an altruistic sense to benefit interstate sellers.
I don't want to make that claim.
But States realized that, to the extent a tax is easy to comply with by a taxpayer, it's more efficient to collect.
We get a greater... we can collect a greater percentage of our taxes by setting a State-wide rate, because all interstate sellers now selling into Missouri know exactly what their tax is on a use tax basis, so that's one of the reasons.
Another reason is, the identical use and tax rates in each jurisdiction approach, well, it doesn't solve the constitutional problem that Mr. Walsh has tried to point out.
It doesn't guarantee equal treatment in each and every instance.
For example, suppose Missouri adopted that system, and you had a resident of a local jurisdiction who wanted to purchase a washing machine.
He happened to live in a jurisdiction where the local use tax rates and sales tax rates were high.
Well, he would have essentially three options.
He could purchase from a local vendor and pay a high local sales tax rate, or he could purchase from an out-of-State vendor and pay the equally high local use tax rate, or he could travel to another local jurisdiction in Missouri and pay a low sales tax rate.
Well, from the out-of-State seller's perspective, that out-of-State seller is at the precise competitive disadvantage in that situation as he is under our present system, so Missouri recognized that going to this identical rate in each jurisdiction solution doesn't cure any supposed inequality that might exist.
So to accommodate the needs of interstate sellers, and to make it more practical, admittedly, also from the State's perspective, it's easier for the State to administer on a State-wide basis, so those are the reasons Missouri went to that system.
Unknown Speaker: Well, you say easier to administer.
Don't you mean easier, in a way, to legislate, because I take it the tax is actually paid to the county or the municipality.
It's not paid to the State, and then the municipalities and counties remit the State portion to it, is that correct?
Mr. Downing: No, Your Honor, it's paid to the State, and then the State remits to the local Governments.
It keeps a 1 percent administration fee, in essence, and then remits the remainder to local Governments.
Unknown Speaker: And you say in the age of computers it's really a lot of trouble to figure out?
Mr. Downing: Your Honor, that's... that's--
Unknown Speaker: In the various counties, you have... you know where it's being sold into, and you know what the tax rate is there.
It doesn't seem to me like a whole lot of trouble.
Mr. Downing: --Your Honor, as a matter of fact, the Court pointed out in Quill that very point, that even in the age of computers, the ease with which interstate sellers can calculate... you see, within various counties, you have different taxable jurisdictions.
You can't just go by the county.
You can't just go by the city.
You can't even go by the zip code.
Unknown Speaker: You know what I would tell those... I would tell those sellers, well, just... if it's a whole lot of trouble, just pay 1-1/2 percent and you'll be sure always to be giving enough, which is what you're making them do.
They could do that voluntarily, if it was really a lot of trouble to figure out what the proper rate was.
Mr. Downing: Well, Your Honor, it's interesting that you mention that, because currently pending before Congress, Congress in response to this Court's decision in Quill is actively considering this session a bill which would enable... and essentially adopt the Missouri system, which would allow States to set, on a State-wide basis, a State-wide use tax rate based on their local sales tax rates.
And my point is not that this Court should necessarily defer to Congress, but that in these difficult practical issues of State taxation... the Court in Quill expressly recognized that Congress may well be better equipped to address some of these issues than this Court, and that was one of the reasons the Quill court chose not to overrule the Bellas Hess case.
That case provided a bright line rule that States could use in devising their tax systems.
Well, that's the situation here.
The bright line rule that General American and this Court's cases have devised in this area is that if the tax that the State imposes on in-State sales, if the average tax is greater than or equal to the tax on interstate sales, then there's no Commerce Clause concern.
Unknown Speaker: Well, I thought the bright line rule was no facial discrimination.
Mr. Downing: Well, Your Honor, again that gets to the issue, do you measure discrimination on a transaction-by-transaction approach, or do you measure it on an overall State-wide basis?
Unknown Speaker: Jurisdiction by jurisdiction, I suppose.
Mr. Downing: Well, again, I would submit that this Court has never invalidated a State tax, compensatory tax, that on an overall basis is favorable to interstate commerce like Missouri's is here.
Unknown Speaker: But have we ever distinguished between... have we ever, rather, ignored jurisdictions in the way that you are asking us to ignore jurisdictions, because what the State is doing, as you described to me a moment ago, is becoming a collection agent for the various sub-State jurisdictions, but the tax... to the extent that there is a differential, the tax is a tax of that sub-State jurisdiction, and you are in effect saying, ignore the actual taxing jurisdiction in this case.
Have we ever done that?
Mr. Downing: Yes, Your Honor, on at least three occasions I can think of.
The General American case is one which is discussed extensively in the briefs.
That case plainly involved, just like here, a State which had varying local tax rates, and a State-wide rate that was set to compensate for those varying local rates.
Unknown Speaker: So that the rate for any given transaction was going to be the same, isn't that correct?
Mr. Downing: No--
Unknown Speaker: --and that's not so here.
Mr. Downing: --That's not... that system plainly allowed for the same possible instances of unequal treatment that our system... just like here.
In that case, Louisiana parishes had varying local rates that applied in-State, and a State-wide rate that applied to nonresident railroad companies, so it plainly... just like here, it allowed for possible instances--
Unknown Speaker: But that wasn't a Commerce Clause case.
Mr. Downing: --Your Honor, I would beg to differ, with all due respect.
Unknown Speaker: Wasn't that an equal protection case?
Mr. Downing: Justice Cardozo believed it was a Commerce Clause case, in the Silas Mason case, and Professors Hellerstein and Hartman in their treatises in this area, respected commentators, both analyzed that case as a Commerce Clause case.
I would grant you there is some ambiguity in the language--
Unknown Speaker: Unfavorably, as I recall, in the case of Hellerstein.
He thought it was a Commerce Clause case that was decided wrong, or at least wouldn't be decided that way today.
Mr. Downing: --He indicated something to that effect, Your Honor, I would grant you that, but again--
Unknown Speaker: Let me--
Mr. Downing: --Professor Hellerstein--
Unknown Speaker: --Oh, go ahead, finish your answer.
I didn't mean--
Mr. Downing: --No... I was going to another thought.
Unknown Speaker: --Would you just comment on one point that it's hard for me to get out of my mind?
If the law has been as clear as it has been since 1926 with the General American tax case, and if the advantages of your system are so obvious, why do you suppose you're a pioneer?
Mr. Downing: Well, Your Honor, I think in large part the States... for example, the equal use tax and sales tax rate in every jurisdiction States, well, that has some superficial appeal to it from a Commerce Clause perspective, I would grant you that, but Missouri was aware of the practical needs of interstate sellers.
I mean, it was fully aware of the Quill case, as it was going up through the courts to this Court, and there the interstate commerce and the interstate sellers came into Missouri and said, listen, there's a problem here.
We've got a practical problem of State taxation.
We want to comply with your tax, but it's very difficult for us to do that.
Can you help us?
Missouri sets a State-wide rate that makes it very easy for them to comply, and I might add that the interstate sellers are the ones in favor of the pending congressional legislation.
They're the ones who want State-wide rates, even though there might be possible instances in which there could be inequality.
Unknown Speaker: Mr. Downing, can I ask you to imagine for a moment the unlikely and horrible event that we don't agree with you on the constitutionality of this scheme.
I assume you would prefer that we not say that all of the imposed taxes are unconstitutional, but rather, only those that exceed the local rates in the counties affected.
I assume you would prefer that outcome to--
Mr. Downing: Absolutely, Your Honor.
Unknown Speaker: --Why?
Why is that a proper way to do it?
Mr. Downing: Well, Your Honor, there's certainly no unconstitutionality under the Commerce Clause for a State in any local jurisdiction to have a use tax rate that's lower or equal to its sales tax rate.
Unknown Speaker: All right, but--
Mr. Downing: I think Mr. Walsh concedes that.
Unknown Speaker: --Suppose a State just passes a general law saying all out-of-State sales shall pay... all out-of-State sellers shall pay $500 a year to the State, all right.
Now, would we analyze the constitutionality of that by going case-by-case to find out whether in fact for this particular seller the sales taxes that that seller avoided offset the $500 and say only those who ended up paying more than would have been taken out of their hides in sales tax, only those have been treated unconstitutionally?
We wouldn't do that, would we?
Mr. Downing: No, Your Honor.
Under this Court's cases the compensatory tax has to reach substantially equivalent events.
There, I don't think you would have any events that the $500 flat rate fee were taxing, so under the Court's precedents, no, that would not be analyzed as a compensatory tax case.
Unknown Speaker: So you say once you're taxing substantially equivalent events, then it's only where there are differences at most, where there are differences that we would require the funds to be refunded.
Mr. Downing: Absolutely.
I'd like to move on to a different subject.
Even if this Court were to require the transaction-by-transaction or firm-by-firm approach advanced by the petitioners, the respondents nonetheless should prevail in this case.
They haven't provided any evidence in the record at all that any interstate firm has suffered any competitive disadvantage when attempting to sell to Missouri residents.
Now, even if they had... even if they had pointed to and produced evidence that there is an interstate seller that competed in a local jurisdiction where the use tax rate was higher than the sales tax rate, and competed in that local jurisdiction with a Missouri business, well, that wouldn't end the analysis, because then one would have to focus--
Unknown Speaker: Well, but may I just interrupt you?
Your whole argument, I take it here, is rejecting the notion that there is a facial discrimination, so on this argument, it's a pure allocation of burden argument, is that right?
If we say there is a facial discrimination, then I take it this argument would not have any application.
Mr. Downing: --If you conclude, under the Court's cases, it's a facial discrimination because the transaction-by-transaction approach is the approach the Court wants to adopt--
Unknown Speaker: Or taxing jurisdiction by taxing jurisdiction approach, but in any event, if we... to the extent that we say there's a facial discrimination, I take it this argument would not be inappropriate, right?
Mr. Downing: --The lack of injury argument?
Unknown Speaker: Yes.
Mr. Downing: --I think you're right.
I think the Court's cases on a facial challenge do not require petitioners to show injury, but I would submit to you--
Unknown Speaker: I don't think that's entirely correct.
You're suggesting, and you suggest you're in agreement with Justice Souter, that someone can come in and attack a tax that he claims discriminates against interest... even though he has suffered no injury from the thing?
Mr. Downing: --No, Your Honor, I didn't mean to say that.
What I... that's a standing question.
Unknown Speaker: Well, that's what I would have thought.
Mr. Downing: What I was addressing was the injury in fact, and I'll move right to the standing question, then.
Petitioners themselves have shown that they have suffered no injury in fact.
As this Court pointed out 2 years ago in the Lujan case, in order to show injury in fact, a plaintiff must plead and prove... to show standing, excuse me... a petitioner must plead and prove that there's an injury in fact that's both concrete and particularized, and that is fairly traceable to the alleged unconstitutionality that he claims.
Unknown Speaker: Now, the State and the petitioner stipulated here, didn't they, on some facts?
Mr. Downing: The only record of stipulation is that they would... the petitioners would have significant administrative costs of compliance with the system.
Unknown Speaker: There was no stipulation that governed whether any particular plaintiff suffered injury as a result of the operation of the Missouri--
Mr. Downing: Not at all, Your Honor, not any injury that's fairly traceable to the unconstitutionality of the system.
The fact that there are differing use rate, or higher use tax rates in certain jurisdictions than sales tax rates, that's the unconstitutionality they claim that's in our system.
They haven't claimed any injury as a result of that.
Unknown Speaker: --They haven't even claimed paying... they haven't even claimed paying the use tax in a jurisdiction that has a lower sales tax?
If they've claimed that, they've claimed injury.
Mr. Downing: They have not claimed that.
There's no evidence in the record that they've claimed that.
The only transaction that is in the record is petitioner Alumax Foils made a purchase in St. Francis County, where the use tax rate is higher than the sales tax rate.
Well, they paid sales tax.
That was an in-State transaction.
They paid sales tax on that transaction.
Well, under their system, if the sales tax rates had been moved up to be equal to the use tax rate, they would have paid more sales tax, so they haven't been injured by any unconstitutionality in the system.
Let's look at Alumax Foils where they're based.
They're based in St. Louis, where the use tax rate and the sales tax rates are identical.
They certainly haven't shown any injury in fact in those counties.
They don't claim there's any constitutional problem in those counties.
Unknown Speaker: Do you really want to win this case on that ground so we can do it again another day?
Mr. Downing: Well, Your Honor... no.
Certainly, I would prefer that this Court say that you must look at the overall effect of State regulation on the national economy, just like you did in Quill 2 years ago.
I would prefer the Court to say it's the interstate market that's protected by the Commerce Clause, not particular interstate firms.
Unknown Speaker: But if we have a facial discrimination and there is a transaction that is taxed, the party... the seller to that transaction would pass your test, would he not?
Mr. Downing: I'm sorry, I need to hear the hypothetical again.
Unknown Speaker: If we have a facial discrimination, and one of the petitioners--
Mr. Downing: In a particular local jurisdiction--
Unknown Speaker: --And one of the petitioners here is an interstate seller whose transaction was taxed at the facially discriminatory rate, that's enough, isn't it?
Mr. Downing: --Right.
There's no evidence of that here, Your Honor.
There's no evidence in the record at all that any... let me move on to the other petitioner, which is Associated Industries, which has both in-State members and out-of-State members.
As to their in-State members, there's no evidence in the record that any in-State member is located in a jurisdiction where the use tax rate is higher than the sales tax rate.
There's no evidence in the record--
Unknown Speaker: No allegation, either?
Mr. Downing: --No allegation.
No allegation whatsoever.
There's no evidence in the record that they had any transactions in any jurisdiction in which the use tax rate is higher than the sales tax rate, and moving on to their out-of-State members, there's no evidence in the record that any out-of-State member of Associated Industries competes with any Missouri business in any local jurisdiction in which the use tax rate is higher than the sales tax rate.
Unknown Speaker: No allegation that any of them paid the use tax in the juris--
Mr. Downing: Oh, to be sure, they paid the tax, but that's--
Unknown Speaker: --In a jurisdiction that had a lower sales tax.
Mr. Downing: --No.
No, there's no allegation to that effect at all in the record, Your Honor.
They have alleged simply that they paid the use tax.
That's the extent.
There's no allegation they paid it in a local jurisdiction where the use tax is higher than the sales tax.
Unknown Speaker: Well, but now, wait a minute, in the supreme court of Missouri opinion on page A-2 of the petition, the opinion says
"The parties, however, have stipulated that appellants pay sales taxes in geographical areas where the aggregate sales tax is less than the aggregate use tax. "
Mr. Downing: Your Honor, that may be in the Missouri supreme court's opinion, but it's not in the record.
Unknown Speaker: Well, we take a care pretty much the way the State supreme court gives it to us on factual matters.
Mr. Downing: Well, Your Honor, I don't... I'm not precisely sure what the Missouri supreme court meant by that, but if they meant to say that there's stipulation in the record that Associated Industries does business in a local jurisdiction where the use tax rate is higher than the sales tax rate, I don't think there's anything in the record about that.
That's my point.
Unknown Speaker: Do you make this point in your brief in opposition?
Mr. Downing: --Your Honor, we had it in our brief, and one of our amicus made the argument, frankly we thought in a very good fashion.
We didn't want to have this Court read duplicate points on that, so we adopted it in a footnote in our brief.
I can point that out to you if you'd like me to show you where we--
Unknown Speaker: Well, no I accept that.
Just tell me.
Mr. Downing: --Okay.
We thought it was a very important argument, because it's jurisdictional to this Court.
Finally, I'd like to make... really, I'd just like to say, really what we have here in this case is a group of local Missouri businesses who don't like section 144.748 simply because it represents a tax increase to them.
They're not concerned about any supposed undue burdens or unequal treatment on interstate commerce.
If there were such burdens, they're not the victims of it.
Rather, they've lost in the Missouri political process, of which they are a part.
They are Missouri businesses, and they want this Court to overturn the sound judgment of the Missouri legislature, a judgment which I might add goes further to accommodate the practical needs of interstate sellers than Missouri was required to go, so I would just respectfully submit to this Court that it not allow petitioner's feigned concern for any supposed burden on interstate commerce which doesn't exist here to transform what is essentially a local political question... a local political issue into a Federal constitutional question, which we don't think is presented here.
Finally, I'd like to offer just a couple of--
Unknown Speaker: I just had one other question on the basic standing.
If their challenge is to the entire statute, then they wouldn't have to allege, which I think your opponent argues, rather than just to the jurisdictions where there's a disparity.
They do have standing to make that challenge, don't they?
Mr. Downing: --Standing to make the challenge that it's... as applied in every case it's unconstitutional?
Unknown Speaker: Yes.
They're claiming a total refund of the whole... so that much is at least before us.
Mr. Downing: If they could succeed in their argument as applied in every xx--
Unknown Speaker: Yes.
Mr. Downing: --Absolutely, I agree with you.
Finally, I want to make three observations that this Court made 2 years ago in the Quill case, which was the last time this Court had an opportunity to analyze the Commerce Clause issues raised by sales and use taxes.
First, the Court observed and reaffirmed the Bellas Hess case in large part because it viewed Bellas Hess as providing a bright line rule here.
As I mentioned before, the Court now has an opportunity to provide another bright line rule that would greatly aid States in devising tax systems that they could be sure would satisfy the Commerce Clause.
The identical treatment in each and every instance approach, the problem, from the State's perspective, of that approach is the State would have to be clairvoyant and try to imagine a possible contingency.
Well, could we have any possible area of unequal treatment?
I dare say that the States that have adopted the identical use and sales tax rates in each local jurisdiction probably thought that they had solved the constitutional problem of... that if there was a constitutional problem, they have outlawed any unequal treatment.
Well, the example that I gave you a few minutes ago shows that that system can result in the same kind of instances of unequal treatment that our system has, so it would be much easier for the State to say, listen, we have a tax on interstate commerce, we have a tax on intrastate commerce.
As long as the tax on interstate commerce is not greater than the tax on local commerce, on an average basis, the tax is constitutional.
Unless, of course, as Justice Scalia pointed to... unless, of course, there was an identifiable market segment or industry that was singled out for special protection, as was the case in the Bacchus case.
Unknown Speaker: How does it work in States that have the county option?
Does the State also collect and remit to the individual county, depending on what that county's tax rate is?
Mr. Downing: Your Honor, I'm no certain of how various other States perform the task of collection.
I'm not certain whether it goes to the county or the State, like it does in our system.
Unknown Speaker: Your system, you were the innovator of it.
Mr. Downing: It's... you're right, Your Honor.
we had the benefit of looking at what other States have done, and also the input from the interstate firms that were involved in the Quill case, so we were fully cognizant of what other States had done when we devised our system.
The second point I'd like to make from the Quill case is, the Court recognized that the critical importance of the doctrine of stare decisis in the area of State taxation, for at least 67 years, the overall burden approach has been firmly embedded in this Court's precedents.
For the Court now to change that rule would raise all sorts of new questions and undoubtedly engender substantial litigation over the validity of a whole host of State taxes that had been enacted during that time period.
I would submit that the Court need not open that can of worms here.
The third point I wanted to make about Quill is the point I made before.
Congress has plenary power in this area, as the Court recognized in Quill.
If it wanted to, it could outlaw the Missouri system.
It has chosen not to for the last 67 years... the overall burden approach... and so therefore I would respectfully submit that unless there is a clear, adverse effect on interstate commerce overall, the Court should be hesitant to exercise its jurisdiction in this area.
Unknown Speaker: Thank you, Mr. Downing.
Mr. Walsh, you have 4 minutes remaining.
Rebuttal of Thomas C. Walsh
Mr. Walsh: Thank you, Your Honor.
This is a discriminatory tax case.
This is not a burden case like Exxon, this is not a health or safety measure, it's not economic regulation, it's not environmental.
It's a discriminatory tax case, and it's guided by the Court's opinion in Complete Auto Transit, and the third element of Complete Auto Transit is, no discrimination against interstate commerce.
This Court has decided three use tax cases since use taxes came into being back in the thirties.
The first was the Silas Mason case... strict equality.
The second was the Halliburton case in 1963, where Chief Justice Warren struck down for the Court a use tax which did not provide strict equality.
There was a differential in the basis between the way the use tax and the sales taxes were calculated.
Unknown Speaker: Excuse me just a moment.
I hate to interrupt you when you're on your final thing.
Are you going to address standing at all?
Mr. Walsh: Your Honor, as, I think Justice Stevens said, we are attacking the statute on its face.
It is stipulated all of the members of our organization and the individual petitioner here have paid the use tax since it went into effect, so the facial validity is challenged by us for having paid the use tax, and--
Unknown Speaker: Is it also stipulated that you paid it in jurisdictions where the use tax was higher than the sales tax?
Mr. Walsh: --Not expressly, no, but we have paid the tax.
We are attacking 144.748 on its face.
We're not asking the Court to carve it up and uphold part of it where it's legal and part of it where it's not legal, because we don't think the statute is susceptible--
Unknown Speaker: Obviously not.
You don't want any it.
Mr. Walsh: --Well, but the statute isn't susceptible to that, Your Honor.
I mean, you'd have to seriously rewrite this statute, which is a State enactment, in order to come up with that sort of--
Unknown Speaker: Oh, we wouldn't have to do anything except say what the principle is, and the rest is for State law.
Mr. Walsh: --Well, the principle is that a taxing system that treats a use tax and a sales tax differently is now and forever discriminatory and facially invalid, and it's not General American that controls that.
General American was not a use tax case, was not even a modern type of compensatory tax case.
It was more an equal protection case than a Commerce Clause case.
The law in this area, if you want to talk about stare decisis and the bright line, the stare decisis and the bright line come from Silas Mason and the Halliburton case, and in Halliburton the Court said,
"The conclusion is inescapable. "
"Equal treatment for in-State and out-of-State taxpayers similarly situated is the condition precedent for a valid use tax on goods imported from out of State. "
That's a bright line.
That's the line that the State of Missouri for its own reasons decided to cross in this case and experiment with a new type of taxation which, if permitted by this Court, I suggest could lead to all sorts of abuses and, in fact, some of the amici are sort of champing at the bit to see whether the opinion of the Court in this case will open some new loopholes in use tax regulation which, since 1937 in the Silas Mason case, have been closed.
The bright line is desirable.
The bright line is equality.
The State of Missouri either can enact either local sales and use taxes at the State level, or it can delegate to the States... to the subdivisions the right to enact local sales and use taxes, as 28 States, other than Missouri, have done.
You're right, Justice Souter, they are a pioneer... I guess, Justice Scalia... they are trying to be a pioneer here.
We think that's illegal.
Chief Justice Rehnquist: Thank you, Mr. Walsh.
The case is submitted.
Argument of Justice Thomas
Mr. Thomas: The second case I have to announce is No.93-397, Associated Industries of Missouri versus Lohman which is before us on a writ of certiorari to the Supreme Court of Missouri.
The State of Missouri imposes a uniform statewide use tax of 1.5% on goods purchased outside the State and used or consumed within the State.
The tax is extensively designed to compensate the sales taxes imposed by political subdivisions of the State on sales of goods within the State.
The local sales tax rates, however, vary widely and in many jurisdictions, the 1.5% use tax exceeds the local sales tax.
Petitioners, representing businesses that must collect or pay the use tax, claimed that this tax scheme discriminates against interstate trade in violation of the Commerce Clause.
Analyzing the tax scheme under our compensatory tax doctrine, the Supreme Court of Missouri determined that given the high average rate of local sales taxes in Missouri, the overall effect of the tax scheme was to place a lighter aggregate burden on interstate trade than on intrastate trade.
In the Court's view, that meant that there was no discrimination against interstate trade on a statewide basis and that the tax did not violate the Commerce Clause.
In an opinion filed with the Clerk today, we reverse.
The use tax on its face is discriminatory because it applies only to goods purchased outside the State.
And while it is true that the compensatory tax Doctrine may save a facially discriminatory tax from constitutional infirmity, Missouri's use tax schemes runs afoul of the requirement under our cases that to be compensatory the burdens imposed on interstate and intrastate commerce must be equal or at least that the burden on interstate commerce must not exceed the burden on intrastate commerce.
Under Missouri's scheme, whether the use tax is equal to or lower than the sales tax is entirely a matter of fortuity depending on the locality where the Missouri purchaser happens to reside.
In those localities where the use tax exceeds the sales tax, the tax scheme impermissibly discriminates against interstate commerce.
The Missouri Supreme Court's statewide aggregating approach to assessing discrimination is inconsistent with our prior cases.
We have implicitly rejected any theory that would require aggregating the burdens on commerce across an entire state to determine the constitutionality of a burden on interstate commerce imposed by particular political subdivision.
We reject the argument that the use tax is invalid in its entirety.
It is only the actual discrimination that results in localities where the use tax exceeds the sales facts that violates the Cnstitution.
Justice Blackmun concurs in the judgment.