OREGON WASTE SYSTEMS, INC. v. OREGON DEPARTMENT OF ENVIRONMENTAL QUALITY
In 1989, Oregon Legislature imposed a surcharge on solid waste generated out- of-state and disposed of within the state. The Department of Environmental Quality, determined the amount of the surcharge to be $2.25 per ton, significantly higher than the $0.85 per ton fee charged for in-state waste. Two waste disposal companies —Waste Systems Inc. and Columbia Resource Company (CRC) — disposed of waste generated out-of-state in Oregon. Waste Systems Inc. managed and owned a landfill in Oregon, and CRC transported waste from Washington State to Oregon. The companies challenged the surcharge in the Oregon Court of Appeals, arguing that it breached the Commerce Clause of the Constitution. However, the appellate court upheld the surcharge, and the Oregon Supreme Court affirmed.
Is the surcharge that Oregon imposed on the in-state disposal of waste produced out-of-state a violation of the Commerce Clause?
Legal provision: Article 1, Section 8, Paragraph 3: Interstate Commerce Clause
Yes. In a majority decision authored by Justice Clarence Thomas, the Court noted that the Commerce Clause prohibits discrimination against interstate commerce, and a regulation is discriminatory if it "taxes a transaction or incident more heavily when it crosses state lines." The majority determined that the surcharge was clearly discriminatory because waste disposal companies were required to pay three times more to dispose of waste produced out-of- state. Thus, for the surcharge to comply with the Commerce Clause, the Department of Environmental Quality needed to demonstrate that it had no choice but to use discriminatory means to serve some local purpose, but it failed to do so. Consequently, the decision of the Oregon Supreme Court was reversed.
IN THE SUPREME COURT OF THE UNITED STATES
OREGON WASTE SYSTEMS, INC. ET AL., Petitioners v. DEPARTMENT OF ENVIRONMENTAL QUALITY OF THE STATE OF OREGON, ET AL.; and COLUMBIA RESOURCE COMPANY, Petitioner v. DEPARTMENT OF ENVIRONMENTAL QUALITY OF THE STATE OF OREGON
Nos. 93-70, 93-108
January 18, 1994
The above-entitled matter came on for oral argument before the Supreme Court of the United States at 10:02 a.m.
ANDREW J. PINCUS, ESQ., Washington, D.C.; on behalf of the Petitioners.
THOMAS A. BALMER, ESQ., Deputy Attorney General of Oregon, Salem, Oregon; on behalf of the Respondent.
CHIEF JUSTICE REHNQUIST: We'll hear argument first this morning in Number 93-70, Oregon Waste Systems v. Department of Environmental Quality, and Number 93-108, Columbia Resource Company v. the same.
ORAL ARGUMENT OF ANDREW J. PINCUS ON BEHALF OF THE PETITIONERS
MR. PINCUS: Thank you, Mr. Chief Justice, and may it please the Court:
This case requires the Court once again to assess the validity under the Commerce Clause of a State law pertaining to interstate commerce in waste, in particular, a State tax on waste disposal. Oregon taxes disposal of waste generated outside its borders at the rate of $2.25 per ton. Waste within Oregon, on the other hand, is taxed at only 85 cents per ton.
Less than 2 years ago in Chemical Waste Management v. Hunt, the Court invalidated an Alabama law that taxed disposal of interstate waste more heavily than disposal of Alabama waste. The Court observed that the tax facially discriminated against interstate commerce and that Alabama had failed to carry its burden, which the Court said was to justify the measure both in terms of the local benefits flowing from the statute and the unavailability of nondiscriminatory alternatives adequate to preserve the local interest at stake. The Court accordingly held the tax unconstitutional.
Oregon advances three basic reasons why this case is different from Chemical Waste Management. None withstand scrutiny.
First, Oregon claims that its $2.25 tax should be upheld because it is cost-based. The sum purportedly is derived from costs borne by Oregon and its political subdivisions from the disposal of a ton of waste, but the Court repeatedly has stated that cost-based fees, like other forms of State exactions, may not discriminate against interstate commerce.
The legal rule that Oregon advocates would permit the very sorts of burdens on interstate commerce that the court has repeatedly condemned. Highway tolls could be collected from vehicles engaged in interstate commerce but not from vehicles engaged in intrastate commerce. Inspection fees could be levied exclusively on out-of-State goods.
QUESTION: Well, Mr. Pincus, now, in Chemical Waste Management v. Hunt, I thought we noted that in that case the State had made no argument that the additional fee was justified as a compensatory tax of some kind, or that there were other justifications.
MR. PINCUS: You did, Your Honor. You noted that the State had abandoned the arguments on that issue that it had raised in the State courts.
QUESTION: Yes, and so I'm not sure that that case resolved this question, where the State comes in and says, well, we're charging our in-State citizens these costs by way of income taxes and so forth.
MR. PINCUS: No, Your Honor, I don't think Chemical Waste Management resolved that question, but I think that several other decisions of this Court did resolve that question, specifically --
QUESTION: But do you think that we have said there can't be any compensating tax of a different type by the State on the in-State people?
MR. PINCUS: No. The Court has said there may be a compensating tax, and in fact the Court has said that it is improper to look only at the particular tax if there is a compensating tax solely on intrastate commerce that equalizes the burden on intrastate and interstate commerce. The Court has said that, and it has elaborated a compensatory tax doctrine that sets forth two requirements that must be satisfied in order for taxes to be balanced in this way. The burdens have to be equal, and they have to be imposed on what the Court has termed substantially equivalent events.
QUESTION: Well, certainly the events are equivalent here, the disposal of solid waste, whether it's in-State or out-of-State.
MR. PINCUS: But, Your Honor, the taxes that the State points to are not levied on substantially equivalent events. That's the flaw in their argument, and that's why they don't even attempt to come within the terms of the compensatory tax doctrine, because they recognize that they can't meet that test.
In income tax, the tax on out-of-State waste is levied on the disposal of waste. The income tax is levied on income. Those two events clearly are not substantially equivalent, so there's no way that they can bring themselves within that doctrine.
And what they're really arguing, making here is an argument that the Court squarely rejected in the Scheiner case, which is that the compensatory tax doctrine should be broadened tremendously, really, and that a State should be able to point to any kind of tax, whether it's on a different group of people, or occasioned by a different event, and sort of in some way point to those taxes and say they balance out this tax and everything sort of comes out in the end, with no real way to be sure that the burdens on interstate commerce and the burdens on intrastate commerce are the same, and that's the reason that the compensatory tax doctrine cases have that requirement in it, is precisely to be sure that the burdens are the same.
QUESTION: But Mr. Pincus, we are not so demanding in other areas. Under the Privileges and Immunities Clause, for example, it's certainly perfectly okay for a State to charge more for hunting licenses to out-of-States residents, is it not, and the theory is, well, they pay income taxes and what-not.
MR. PINCUS: Well, Your Honor, I don't think the Court has said one way or another. The cases -- the Privileges and Immunities cases that Oregon relies on are cases that struck down disparate fees. The Court has never said, and in those cases the Court said, disparate fees are not permissible, at least fees with that disparity. I don't think the Court has ever said that a smaller disparity --
QUESTION: You think they cannot charge --
MR. PINCUS: -- may be okay. I'm not sure, Your Honor.
QUESTION: I'm glad to hear that, but I always thought that they could do it.
MR. PINCUS: Well --
QUESTION: Mr. Pincus, what about in-State tuitions, tuitions for in-Staters of State universities being considerably lower for out-of-Staters on the theory that the in-Staters pay State income tax and are supporting --
MR. PINCUS: Well, in the State university context, Your Honor, I think the State there, those types of disparities I think would fall within the market participant doctrine that the Court has elaborated under the Commerce Clause, which is where the State has entered into the marketplace, where it's not acting as a regulator but it is acting -- providing services or goods in competition, really, with the private sector. It can discriminate in favor of its own citizens, and I think the colleges and university examples would fit squarely within that rubric.
QUESTION: You think hunting, too, maybe -- it's providing wild beasts --
MR. PINCUS: No, I don't think that hunting would fit within that. I'm not -- first of all, I don't think the Court has ever said that the Commerce Clause is in all respects -- provides protections equivalent to the Privileges and Immunities Clause or vice versa.
I think the Court has been very clear in its Commerce Clause cases, where it's grappled with this very precise question, to say that taxes must be equal. It hasn't had to deal with that question in a Privileges and Immunities context, and it may be that they're different.
But in the Commerce Clause context, where the question is possible competitive disadvantages to out-of-Staters simply because they're out-of-Staters, and that -- with the very, very significant interest that the Court has found in maintaining a national economy, I think there the Court has come down squarely in favor of absolute equality.
And I think it would be a very significant departure from the Court's Commerce Clause cases, again where it has specifically addressed this question, to say that oh, we didn't really mean it, rough equality is okay, and I think the problem with the argument here is there's really no way to know how rough the equality is, how rough -- or whether there's any real equality in what Oregon has proposed.
QUESTION: But if you're going to insist on absolute equality, that's a test that can never be met. I mean, you say rough equality is no good at one end of the spectrum, but certainly absolute equality is just an impossible standard to meet.
MR. PINCUS: I don't think so, Your Honor, because I think if there was a $2.25 -- the same $2.25 tax on disposal of Oregon-generated waste there would be equality here.
QUESTION: Well, yes, but that's the kind of equality that lets the State do nothing. I thought we were talking about possible alternates, and that there has to be equality between the alternate and the tax imposed on interstate commerce.
MR. PINCUS: Well, although, in the compensatory tax doctrine cases, that's really what the Court has insisted on, and that's why the issue has come up in four or five cases.
The Court has only found one situation, the sales and use tax, where there really is -- where the taxes are so interlocking, and the rates are the same, that that test is satisfied.
But in a case like the Court's Armco case, for example, where there was an out-of-State tax on wholesale -- sales at wholesale of goods within the State, and an in-State tax solely on manufacturing, which was at a higher level, the Court said we're not going to balance these two taxes, because we just don't know how much of the in-State tax, although it's higher, is to make up for wholesaling, and whether or not it in fact balances the out-of-State tax, and we're going to insist, because we want to safeguard this important value of the Commerce Clause on equality, and the Court has done that --
QUESTION: Well, it's one thing to say we just don't know. It's another thing to say that based on what we know, absolute equality is required, rather than something pretty close to it.
MR. PINCUS: Well, Your Honor, I don't think this case requires the Court to come to the sort of --
QUESTION: But isn't it your position -- I think you were candid before when you said, Oregon's got a charge, $2.25. They want to give everybody a break, they could charge .85, but isn't your argument that it's got to be the same charge for the out-of-Staters --
MR. PINCUS: Yes. We think --
QUESTION: -- out-of-State garbage as for the in-State?
MR. PINCUS: We think that is the appropriate result for this case. We think that's --
QUESTION: Is there anything in between that you think is compatible with the Commerce Clause?
MR. PINCUS: Well, as we suggest in our reply brief, if Oregon wants to re-allocate the tax burdens among in-State people, it can do so through the use of a subsidy to the people who are paying the $2.25 tax.
The Court made clear, it's made clear in a number of cases, most recently in the New Energy case, that subsidies are not reached by the Commerce Clause and States may do things that may have very, very similar economic effects to discriminatory taxes when they act through subsidies rather than through taxation.
So in this case we think that Oregon could have an even-handed tax, and to the extent it wanted to distribute the tax -- the part of the in-State tax among groups other than the generators of waste, it can do so by use of a subsidy, and that preserves the value of the Commerce Clause because the taxes are equal, and it allows the States --
QUESTION: What is the underlying premise for that distinction? That's just formalism that the law must accept for simplicity's sake, or --
MR. PINCUS: The distinction between those two alternatives? Well, I think --
QUESTION: No, the justification for allowing a subsidy. Suppose there was a subsidy that precisely equaled the 85 cent to 25 cent differential to all Oregon waste disposal companies.
MR. PINCUS: I think there are several reasons. First of all, the subsidy would certainly have to meet a rational basis. The reason for the subsidy would have to be rational. It couldn't just be some completely untenable reason. I think the reason --
QUESTION: Well, the reason would be, we like people in the waste business. That almost suffices for a rational basis for State benefit, doesn't it?
MR. PINCUS: But I think the virtue of that is that it forces -- one of the values that the Court has recognized underlying the Commerce Clause is the protection of out-of-State interests who are not represented within the State's political process, and that's one of the reasons why the Court has been so strong in requiring equality.
In the subsidy situation, the people whose ox is being gored, as it were, are the people who are going to be financing the subsidy, and to the extent those are in-state interests that have a voice in the political process, the State will have to face up to the fact -- to what it's doing, which is reallocating the tax burden away from generators and to another group of taxpayers, some of whom will probably be within the State, and that battle will be fought out in the political process.
The problem with allowing the discriminatory tax is that the people whose ox is gored there are people who are not -- have no voice in the political process.
QUESTION: I would have thought that you'd make the same argument to invalidate the subsidy. It treats out-of-Staters unconstitutionally. It discriminates against them.
MR. PINCUS: Well, it does, Your Honor, but the Court -- we are faced with the Court's precedents, which say that subsidies are different, that the Commerce Clause speaks to the State's exercise of its regulatory authority, and the Court most recently --
QUESTION: But the theory doesn't hold water very well, it seems to me. What about States that charge out-of-State students more tuition than in-State students? Is that invalid under your theory, under the Commerce Clause?
MR. PINCUS: No, Your Honor. I think that that is a situation where the State is not acting as a regulator. The State is acting as a service provider, a market participant, and the Court has recognized that when the State acts as a market participant and not as a regulator, it may discriminate in favor of its own citizens, and so I think in that situation, that lesser charge is completely permissible under the Court's cases and wouldn't be affected at all by overturning Oregon's tax in this case, but here Oregon is acting as a regulator.
QUESTION: What about the Evansville Airport case? Did that address that aspect?
MR. PINCUS: No. The Court there applied the full Commerce Clause test in that case, and held that the nondiscrimination requirement was satisfied.
QUESTION: It didn't rely on the market participation theory.
MR. PINCUS: It didn't, but that was not -- I think that the university situation is a clearer situation, where the State is in the market, competing with private providers of the same service, and I think it's quite clear that in that situation the Court has said the State can discriminate, but when it's acting as a regulator, it can't.
QUESTION: Mr. Pincus, I'm going to ask you a question about the facts. When you sort of acknowledge that a subsidy could pretty well accomplish the same thing, tell me exactly, what does your client do? Is it a disposal outfit, or --
MR. PINCUS: It's a disposal company.
QUESTION: And some of the trash that comes to it comes from in-State and comes from out-State, and they're fungible as far as the actual process is concerned, but you pay a different fee to the State on one source --
MR. PINCUS: Right.
QUESTION: Now, how does the subsidy work? Do you mean to say that the State could remedy this by having you pay the same fee to everybody and then they just rebate on a portion of your disposal an amount equal to the difference that's now there? You're saying that would be perfectly all right?
MR. PINCUS: Well, Your Honor, exactly -- the Court has another case, the Westland Creamery case, which deals with some questions about the linking of taxes and subsidies, but I think in this case what would happen is we would -- there would be an even-handed tax to protect the values of the Commerce Clause -- yes, then the State could, from its general Treasury, rebate some of that money.
QUESTION: To you.
MR. PINCUS: Yes, and we would then be --
QUESTION: And you say that's constitutionally different from what's happening now.
MR. PINCUS: Well, we think it is, Your Honor, because what will happen -- and I think what's interesting is to look at Oregon's fall-back position in this case, because its statute contains sort of a fall-back provision in case this tax is held unconstitutional, and what Oregon has done is not to raise everybody up to $2.25, and have some kind of a subsidy, it's to lower everybody's -- lower the out-of-State rate to 85 cents, and I think what may happen, when the rate to be imposed on in-State interests and out-of-State interests is the same, is that the political process may work to have a lower rate, and I think --
QUESTION: But within the political process what you'd say is, now look, you voters, this is a win-win proposition. We're going to charge you a big tax, but we're going to give it all back --
MR. PINCUS: But, Your Honor --
QUESTION: -- and that means the out-of-State people will bear the brunt. You can't lose.
MR. PINCUS: But you have to say we're giving it back from some other pot of money, which is coming from --
QUESTION: Well, suppose it's the same --
MR. PINCUS: Perhaps from --
QUESTION: Suppose it's the same -- suppose it's the same fund.
MR. PINCUS: But it may be coming from different in-State interests than -- what Oregon wants to do here is --
QUESTION: Well, why would it, if it's just a rebate of the tax?
MR. PINCUS: Well, I --
QUESTION: 100 percent of what you pay if you're in-State goes back to you, or 85 percent, and 100 percent of what the out-of-State people pay doesn't go back to them. It's a very tidy scheme.
MR. PINCUS: Well, Your Honor, I don't -- I think --
QUESTION: And I don't see --
MR. PINCUS: -- one of the things --
QUESTION: -- how the political process could object to that.
MR. PINCUS: Well, some people may object to paying higher taxes because it won't come out in the wash in terms of where you get the money from. I think that's the problem.
QUESTION: Well, I assume that these taxes are just imposed on the company that disposes of the garbage, not on the householder, right?
MR. PINCUS: Yes, although they typically are passed through by --
QUESTION: Well, but people don't understand that. I mean, that's why they talk about free television. They don't understand that, right? So what you would propose to the voters of Oregon is that everybody pay more taxes in order to subsidize Oregon garbage disposers, and I -- that doesn't sound like a very -- that is not a big winner --
MR. PINCUS: Well, I think that's right, Your Honor.
QUESTION: -- I think.
MR. PINCUS: That's why the political system, I think, will take care of the question. I don't think -- I don't think it's easy to say this will all come out in the wash, because one of the things the Commerce Clause recognizes is that when in-State interests are squarely confronted with shouldering the burden that is being imposed on out-of-State interests, that burden may not be as high as it might otherwise be, and I think that's the process point that will be accomplished if Oregon is required to act through even-handed taxes, and that's something the Court has recognized repeatedly in its cases.
QUESTION: So if the tax just went into a special fund, the waste disposal fund, and went right back, it never goes into the general Treasury, everybody that's in the waste disposing business pays the tax, but if you're in-State, you get it back. It's all earmarked as a special fund. Would that be valid?
MR. PINCUS: Well, that's --
QUESTION: And they call it a subsidy. They call it a rebate-subsidy.
MR. PINCUS: I think one question that the Court is going to grapple with in Westland Creamery is whether, in fact, there can be such a tight linkage between an even-handed tax and a subsidy, or whether in a scheme like that, where the general revenue funds aren't involved, what you'll have -- what you'll end up with is something where you netted out that's very close to a discriminatory tax.
But even if that's true, I think there are -- as Justice Scalia pointed out, it's not that clear that it would work that way, and second of all, I think another thing that has to be considered is what Oregon has done here is to create a tax that recovers "costs," and I think as it explains in the last footnote of its brief, it defines costs very broadly. It's not talking simply about out-of-pocket costs. It's talking about potential costs that might happen if certain events come to pass, it's talking about social costs --
QUESTION: Well, didn't the supreme court of Oregon say that some of that material simply couldn't be looked into in this particular proceeding because of the nature of the proceeding?
MR. PINCUS: It did, Your Honor. It reserved the excessiveness point, but I think this point also relates to the possibilities of discrimination if the Court were to establish a different rule for something that could be denominated as a user's fee.
It puts tremendous pressure on the concept of costs, because a State if it wants to engage in imposing discriminatory exactions has a tremendous incentive to put its levy into the user fee box and then to cast its net very broadly in terms of the costs that it's seeking to recover.
And I think not only the excessiveness prong of the Court's Commerce Clause doctrine but also the antidiscrimination prong worked to protect that, because if the legislature has to impose the same cost recovery burden on in-Staters as out-of-Staters, it may be a little reluctant to inflate or cast its net very broadly in looking for the kinds of costs that can be covered, and I think exactly the opposite will happen if user fees are granted some kind of an exemption from the discrimination prong and the rule simply is you can do whatever you want.
Then the problem's going to be that there will be great pressure to put more fees into that box to avoid precisely the legal rule that Oregon is seeking to avoid here, and the legal rule that has tripped up a number of user fees that the Court has considered.
QUESTION: Would it really be appropriate for us to get into the compensatory tax issue here, because that isn't the basis for the Oregon ruling. The basis for the Oregon ruling was simply that there was a relationship between the tax or the fee charged and State costs, and do we have any broader issue than simply the sufficiency of that reasoning?
MR. PINCUS: Well, as a threshold matter, I think the question that we raised in the petition is whether there is this exemption from the discrimination -- antidiscrimination rule for cost-based fees. I think you're right, Your Honor, and I think that is the question the Court has to resolve. Oregon I think has raised a number of alternative arguments -- arguments that I guess are in the nature of alternative arguments supporting the judgment.
QUESTION: But of course, by the nature of the record we have, we really couldn't come to any decision on that, could we?
MR. PINCUS: Well, I think you could, Your Honor, because I think that the compensatory tax argument that they're making here is a legal argument. What they're basically saying is, the rules that the Court has elaborated in the compensatory tax doctrine don't apply, so I think if they win that legal ruling --
QUESTION: Anything goes, yes.
MR. PINCUS: I think, if you agree with us that they do apply, I think it's clear that their argument can be rejected. If you agree with them that they don't apply, I think they do have a further factual burden to carry in terms of meeting whatever the requirements are of the legal standard they are proposing, but I think under the existing precedent, which is quite clear, they don't meet that test, and I think the Court can hold that.
QUESTION: Your answer, then, to the question reserved in the footnote in Chemical Waste, your answer is, no there can't be a cost-justified --
MR. PINCUS: No, Your Honor, our answer is that interstate commerce can be made to pay its way, but the State can't at the same time allow intrastate commerce to escape from that burden, that it's a two-way street, and our answer to the footnote is yes, certainly cost-based fees can be recovered, as long as they're recovered even-handedly, but what Oregon has chosen to do here is to recover the costs only from interstate commerce and to give -- not to recover them fully from intrastate commerce, and that we say it can't do.
QUESTION: But in this picture it's got to be initially a uniform fee and then you're reserving the question of a subsidy, whether the subsidy might be a subterfuge for the discrimination or whether it was a legitimate subsidy.
MR. PINCUS: Exactly, Your Honor. We think that really, unless the Court is going to rework significantly the jurisprudence in this area that the Court has laid down the clear principle the taxes have to be even-handed. There is an exception to that, the compensatory tax doctrine, that is hedged with this very -- the equivalent -- substantial equivalent event requirement. That clearly isn't met. Oregon recognizes that it's not, and we think that's the end of their argument here.
Unless the Court has any further questions, I'll reserve my time.
QUESTION: That's also the end of my argument.
QUESTION: Thank you, Mr. Pincus. We'll hear argument now from you, Mr. Balmer.
ORAL ARGUMENT OF THOMAS A. BALMER ON BEHALF OF THE RESPONDENTS
MR. BALMER: Thank you, Mr. Chief Justice, and may it please the Court:
If Oregon is to recover its actual costs of regulating its disposal of out-of-State waste that comes into Oregon, a clearly legitimate State objective, it can only do so in one way, by imposing a user fee on that waste when it is dumped.
The question in this case is whether Oregon must recover the costs of in-State waste by imposing an identical user fee on in-State waste, or whether Oregon has the flexibility to pay some of those in-State costs with general fund revenues.
In answering this question, I'd like to address pay.
QUESTION: Right, but ultimately, a court would have to examine the calculations that have been made to be sure that Oregon was telling the truth about what percentage of all of the trash disposed of in Oregon is out of State and what percentage of the costs go to that, right?
MR. BALMER: That's absolutely correct, and they --
QUESTION: That's a lot of work, and have courts traditionally done that in Commerce Clause cases?
MR. BALMER: The courts have done that in all sorts of cases. They've done it -- they do it and the costs themselves are initial in many kinds of cases.
QUESTION: Suppose New York State comes in and says, we hav calculated that of the total amount of funding for our police and security forces in the State, 10 percent is attributable to protecting interstate commerce, and therefore we're going to charge all trucks entering the State a fee that -- the total amount of which will equal 10 percent of the total State police protection. Is that okay under your theory?
MR. BALMER: I think that's probably okay. I think that's a tougher case, and this Court has --
QUESTION: Well, we'd have to go in and examine whether, indeed, 10 percent of New York's police protection goes to interstate commerce, right?
MR. BALMER: That's right. Out-of-State interests could sue and claim that we aren't being assessed the appropriate costs.
QUESTION: And you could do the same thing for bridges, bridge tolls and highway tolls?
MR. BALMER: The reason I'm hedging a little bit is transportation is a little bit different, frankly. I think this Court has always recognized that modes of transportation, because they by definition move in interstate commerce, that's how that business works, are particularly susceptible to discriminatory State fees.
QUESTION: Well, one thing is to check to see that the cost calculation, and that's the problem with this. It would be not an easy check to make, but is your theory any different? I mean, this trash waste moves in interstate commerce, too, there's no question about that.
MR. BALMER: No question about that.
QUESTION: And if the State can figure out what it costs for out-of-Staters to use its roads or its bridges, why wouldn't the identical theory apply?
MR. BALMER: I think that our basic answer is that if the costs are reasonable, if they're fairly apportioned, that that theory would apply.
QUESTION: And the burden is on the other side to show that they're not. You say, it's facially okay unless and until the other side can get some court to figure out that it's not fairly apportioned, right, isn't that your theory?
MR. BALMER: That's correct.
Justice Scalia, you asked Mr. Pincus about any Commerce Clause cases, and in Dean Milk, the Court suggested exactly what Oregon does here. They said, as an alternative to keeping out out-of-State milk that isn't pasteurized within 5 miles of Madison, you could inspect the out-of-State milk and charge the out-of-State milk producers the cost of that regulatory program. That's really what we're doing here.
QUESTION: That's a program that would be applied only to the out-of-State milk. You're only setting up the inspection for the out-of-State milk, because in Dean Milk the in-State processing facilities were inspected in-State. I mean, that's perfectly --
MR. BALMER: Well, but I think they were inspected in-State, and at least as far as you can tell from the opinion, the in-State interests were paying in-State inspection costs. What they're really --
QUESTION: Yes, but the dairies weren't. They were out of general revenues in Dean Milk.
MR. BALMER: That's right, the dairies were out of general revenues, and that is really their complaint here. If they --
QUESTION: I've always read Dean Milk as saying that you could charge for the additional cost of the inspector to travel. I don't read it as a subvention of 100 percent of the inspection scheme if the locals aren't paying the same.
MR. BALMER: Well, I think that --
QUESTION: I think you take Dean Milk somewhat too far.
MR. BALMER: I think that that suggestion's there. I don't think Dean Milk -- I don't think that's a necessary part of the holding, but I think that suggestion is there that those costs could be incurred through a regulatory fee imposed on out-of-State commerce.
What they're really complaining about here is the fact that we use general funds to pay part of the Oregon inspection program, and we submit that this cost recovery structure is consistent with the Commerce Clause because the structure doesn't discriminate on its face, it is facially neutral. The appropriate standard here is that which the Court used in Pike v. Bruce Church and in the Sporhase case.
QUESTION: Why is this facially neutral if the out-of-State garbage pays one rate and the in-State pays another? Why isn't that facially discriminatory?
MR. BALMER: The costs are imposed in an even-handed manner. Out-of-State waste, because it's the only way we can recover that cost from out-of-State waste, pays a user fee. In-State waste pays through a combination of -- or in-State interests, I should say, pays the same costs, the costs that the State incurs in handling in-State waste through a combination of a user fee and general taxes.
QUESTION: No, but the processing company that's involved here pays $2.25 a ton on waste that comes from out-of-State and 85 cents a ton on waste that's generated in the State. Maybe it's justified, but at least facially, there's a disparity there, isn't there?
MR. BALMER: Well, the disparity is only if you look at the user fee portion.
QUESTION: Only if you look at the face of the statute.
MR. BALMER: No, if you look at the face of the statute it says, out-of-State waste pays costs and in-State waste pays its cost.
I think what we have to focus on here --
QUESTION: So it's -- so it's facially nondiscriminatory as long as you ignore the amount of the fee.
MR. BALMER: I agree that the fee, the user fee portion of this is different.
QUESTION: No, but that's what you're saying, isn't it?
I mean, we don't judge whether the tax is facially discriminatory based on whether the State says we're being fair. We judge it based on what it charges, don't we?
MR. BALMER: And it charges the same amount to in-State interests.
QUESTION: Facially we can't say that.
MR. BALMER: Facially, you cannot say that it charges an in-State waste producer the same as it charges an out-of-State waste producer, that is true. There's a facial difference there, but facially it charges the same costs to in-State interests. We pay some of them through the general fund --
QUESTION: You mean the same claim to justification is claimed for each fee. That's what it boils down to.
MR. BALMER: That's right, that the fees -- no. No, the same --
QUESTION: That's -- whatever that is, that's not a facial criterion. I mean, that is a facial criterion so broad as to be meaningless.
MR. BALMER: Well, it is -- because all they're being required to pay are their costs, we are funding -- we are covering all our costs. Now, I think this will be --
QUESTION: To do that, you have to go far, far beyond the -- behind the face of the tax statute. Maybe we're just arguing about words here, but it seems to me that the notion of what is facially discriminatory is not the notion that you are describing in your answer to Justice Stevens or your answer to me.
MR. BALMER: I think that maybe what we're missing here is the fact that there is no impermissible effect on commerce as a result of this differential fee.
QUESTION: How did we get into that on a facial challenge?
MR. BALMER: Well, I think --
QUESTION: Part of your argument is that the very scheme under which they brought the challenge limited it to certain facial characteristics. You look to the regulation, you look to the statute, and you look to the State's administrative procedure scheme, and it seems to me you are now saying well, we're going to justify it on grounds which could not have in fact even been considered by the State court, given the nature of the challenge here. Isn't that fair to say?
MR. BALMER: I think that when -- if you are looking just at the fee, that is true, there is a difference. They brought this challenge in a facial manner where they had to assume the costs we were recovering from out-of-State interests are the same as the costs that are being from in-State interests, and that was the basis on which the case was reviewed in the Oregon courts, and the Oregon courts said, we can't tell on this record that the fee is disproportionate to the services the State provides. Now, if --
QUESTION: There are two different notions of facial challenge involved. One is on the face of the statute there are disparate exactions, and therefore, on the face of it, there is a discrimination, whereas the Oregon court said, oh, no, that's not what is meant here. What is meant here is that if on any conceivable set of facts this might -- this disparate fee scheme might be sustained, it's constitutional. That's the notion of facial challenge that you're taking refuge in now, isn't it, the latter one?
MR. BALMER: That's essentially correct. The reason I think that the Sporhase and similar cases apply is that we are burdening in-State interests in a way that is similar to the way we are burdening out-of-State interests, and I'll accept that it is true that there is a difference in the way we collect that fee, but we are not --
QUESTION: There's this difference, too. The only out-of-State interest -- you say out-of-State interests. The only out-of-State interest you collected from are garbage-disposers.
MR. BALMER: That's right.
QUESTION: Whereas you collected from all in-State interests, not just garbage disposers.
MR. BALMER: That's right.
QUESTION: Everybody within the State.
MR. BALMER: That's right.
QUESTION: Well, that's a wonderful way of favoring one of your industries to the disadvantage of out-of-State industries. You are giving that industry a disproportionate advantage.
MR. BALMER: We're -- it's --
QUESTION: By charging the out-of-State industry a higher fee than the in-State industry pays, and it seems to me no defense to that to say, well, the in-State industry may not pay those fees, but other "in-State interests" pay those fees.
MR. BALMER: This would be a more difficult case if we were talking about products that actually compete in a marketplace. Now, garbage is commerce, and there are markets that are affected by this fee, but I think it would be a different case if we were charging a different fee for out-of-State apples that came into Oregon and we inspected and subsidizing that fee for in-State apples. There, we're having a direct effect right at the market.
QUESTION: You're not selling garbage, you're selling space. You're selling garbage disposal space.
MR. BALMER: Right.
QUESTION: I think anybody who thinks this isn't commerce is --
MR. BALMER: No, no, it is commerce, and we're selling disposal space but we --
QUESTION: And you're selling it for in-State people cheaper than for out-of-State people. You're making out-of-State people pay a premium.
MR. BALMER: Well, there's no -- none of the petitioners here are really complaining about that aspect of it. The Oregon Waste Systems wants in-State waste to come and be dumped in their garbage pit, and --
QUESTION: Sure, because it's cheaper. Because the fee is cheaper.
MR. BALMER: Sure.
QUESTION: They get 100 tons, half of it from out-of-State and half in-State, the half in-State is more profitable to them, so they can give a lower price to those in the State than the people out-of-State will pay for precisely the same service, so the tendency will be to have a rate structure that will discourage garbage from coming across State lines.
MR. BALMER: But this Court has always held that we can recover from out-of-State business the cost that out-of-State business impose upon the State, and if our fee is based on cost, then we can do it.
Now, the way we finance the in-State portion of that -- and we finance it over general funds the way States have traditionally financed essential State services.
QUESTION: But it's your financing argument that it seems to me makes your premise illogical. You begin by saying, we're going to compare in-State and out-of-State garbage processors, but you then say that the in-State processors are subsidized by the general revenues, and that takes away the validity of your classification, because we're no longer comparing in-State and out-of-State garbage processors. We're comparing out-of-State garbage processors with the whole State of Oregon, which gives a definite competitive advantage to the in-state processor. You've destroyed your classification by the explication you give for the local subvention.
MR. BALMER: Well, we are giving in-State interests, in-State garbage producers -- I'm not sure I know what you mean when you say, processors. In-State garbage producers receive some benefit at the expense of Oregon's general taxpayers, and -- but that is the same sort of benefit that you get by being a citizen of a State that has low property tax or finances any other Government service through general funds as opposed to financing it exclusively through a user fee.
QUESTION: But it seems to me --
MR. BALMER: It's like a subsidy.
QUESTION: -- at the end of your analysis, your comparative classes are two: a) out-of-State garbage collectors, b) everyone in the State of Oregon, and that's not the basis on which you must make the comparison for Commerce Clause purposes. You end up at a point different from where you began, and your whole analysis changes.
MR. BALMER: Well, Justice Kennedy, I think that the -- we cannot -- the only way we can make out-of-State garbage pay its way is through a user fee. That fee is imposed in one way or another on the out-of-State waste generator.
Now, I agree, if you compare the out-of-State waste generator that has to pay, indirectly, $2.25, with the in-State waste generator, the person that produces the garbage, there is a difference, but the benefit to the in-State waste generator is simply an incidental benefit to Oregon's efforts to 1) collect the costs of out-of-State garbage, because there's no question on this record that those are legitimate costs, and 2) to spread the costs of Oregon's waste reduction efforts over all its citizens.
It's certainly a legitimate objective for the State to say, everybody in Oregon benefits from a clean environment, and so we're going to make everybody pay some of the cost. We're not going to make it be borne entirely by the garbage producer.
And it's also legitimate to say, as the States do in other cases involving essential services, we need to have a stable funding source. We're going to fund this through the income tax. We're going to spread it broadly. We're not going to make it subject to the vagaries of the user charge.
QUESTION: Well, but that's the whole question. It may not be legitimate under the Commerce Clause.
Suppose that, to take the college example -- now, let's see, Reed College is a private college. Suppose Oregon had a tax on all out-of-State students who come to Oregon private colleges, and said, well, they've increased police, and they use public services, and the Oregon students don't have to pay that because it's funded by everybody. It seems to me that would be clearly unconstitutional, because it's quite a different class that is bearing the out-of-State tax that's bearing the in-State tax.
MR. BALMER: I think that example raises some right-to-travel and other questions, but I think that if Oregon wanted to impose a cost-based charge on out-of-State garbage coming in, students coming in -- actually, when you think about the student example as an individual coming to the State I think it's a much more complicated example than we've got here, but if we keep it at the level of commodities, particularly commodities that don't compete with each other in the same way, we think that given the Commerce Clause analysis that ought to be applied here, which is the more flexible Pike v. Bruce Church standard, that we should meet that test.
QUESTION: May I ask another question? The fees you're recovering are for the cost of the inspection primarily, is that right?
MR. BALMER: The -- there are inspection costs, there are landfill siting expenses, post closure expenses -- essentially it's --
QUESTION: What do you mean by siting? What do you mean, inspecting a new facility? What's a siting cost?
MR. BALMER: A siting cost is, if we fill up these landfills more quickly we're going to have to site new landfills. That requires engineering studies, it requires a State to go out and inspect -- what's covered here is essentially the cost of managing Oregon's solid waste program, which includes a whole bunch of things.
QUESTION: And in each of those functions the inspector or the person who approves new sites and so forth doesn't draw any distinction whatsoever based on the source of the garbage.
MR. BALMER: Well, those functions --
QUESTION: If he's inspecting a plant that's in operation, for example, he doesn't say, well, you're going to use in-State garbage through a certain incinerator and in-State garbage in a different incinerator. It's all dumped in the same incinerator, isn't it?
MR. BALMER: It's all dumped in the same incinerator, and the real question is, how many tons are dumped into it, and if 5 percent of the tons are from out-of-State interests, then we allocate essentially 5 percent of the cost to them, because they are benefiting from this program that we have. They are benefiting from the new landfill sites that we're going to open up. They benefit from the inspection --
QUESTION: Well, the primary beneficiary, it seems to me, is the company that's engaged in the business of disposing this garbage. That's the one that makes the profit out of it, and they are benefiting both from the sites, the inspection, the whole program, and they're Oregon people.
MR. BALMER: But petitioners right here, they are Oregon people, and they are benefiting from that.
I'm not sure I see whether your question is going towards discrimination in favor of the Oregon landfill versus the Washington landfill --
QUESTION: No. No, it's just that the material that goes through has two different sources, one in-State and one out-State, and because of your program, those that come from out-of-State have to pay higher fees.
MR. BALMER: Well, the statute says that we can recover the costs -- what it authorizes us to do is to recover the cost to Oregon of dealing with out-of-State waste.
If some of those costs are not properly recoverable, and in the first instance that would be a matter of State law -- what did the legislature mean when they said, costs? -- that is the kind of challenge that the petitioners could bring and they have brought in State and Federal trial courts, and if they can prove that these are not really costs that are appropriately allocated to out-of-State commerce, then those costs would probably be struck down by a trial court at some point after hearing evidence on the issue.
QUESTION: Wasn't there one of our cases -- was it the Scheiner case? -- there was a concern about plunging the courts into this morass of checking -- if you're right that you can -- as a facial matter, this can go on, and then you reserve the judgment of whether it was cost-justified or not, that is kind of a morass to put the courts into, isn't it?
MR. BALMER: Well, I think that the question of what costs are appropriately recovered is the kind of question the trial courts deal with all the time.
In Chemical Waste Management, there was a trial and the -- over whether -- over the out-of-State fee that Alabama imposed on hazardous waste coming in, and the trial court said, yes, this is too much.
QUESTION: Then let's go back to the larger question, and then I think your answer is -- let's take what Judge Ripple said in the Seventh Circuit Indiana case, and he said the problem with the theory is that any time an entity is involved in interstate commerce, any time such an entity happens to use facilities supported by general State tax funds, you can have this, and we gave the specific example of highways and bridges, but one could conceive of many others.
The notion that your theory would apply would allow the State to tax interstate commerce more heavily any time there is a facility supported by general tax funds.
MR. BALMER: That is basically our position. As I said, I think in the transportation area it's a little bit more difficult, but theoretically the States ought to be able to recover. Our position is that out-of-State commerce, as this Court has said, can be made to pay its own way, and as long as it's not paying more than its own way, the State has the option, should have the option, of financing its appropriate share of the cost through a combination of user fees or general taxes or all general taxes.
Now, again, this case is easier than a case where you actually have competing goods that are -- that are competing with one another right in the marketplace there and the State is giving a benefit, as in the New Energy Co. case where you give a tax exemption to Ohio-produced ethanol but not to the Indiana-produced ethanol that comes right into the State and competes there.
Now, in that case, Justice Scalia said Indiana's subsidy for Indiana ethanol producers is okay. There's no problem with that, but the exemption that Ohio gave for in-State produced ethanol but not out-of-State produced ethanol was invalid under the Commerce Clause, and all that we're doing here is giving a subsidy, if you will, to in-State garbage producers that is funded not by out-of-State interests but other in-State interests. We're making all Oregonians pay a little bit more, and Oregon garbage producers pay a little bit less.
QUESTION: But there may be a difference between a subsidy given by -- out of general revenues and a subsidy given by simply charging differential fees. There may be a difference.
MR. BALMER: I think that in each case the court would -- and in fact the court does look pretty carefully at what's really happening out there. I think the court has not taken a really mechanistic approach to these cases. The court says, where are the economic forces here, and I think in this case, as you -- in your colloquy with Mr. Pincus, said what's the difference if we start out-of-State $2.25, charge in-State $2.25, and then rebate the in-State people $1.40?
They come and dump their garbage in the landfill, and we take $2.25 from them, and then we write them a check from general revenues for $1.40, the difference, and it's unclear to me that we should have to go through that administrative process in order to further a -- sort of a hypothetical or a Commerce Clause interest that I think is somewhat difficult to define.
QUESTION: But it seems to me that the change in our prior Commerce Clause jurisprudence that you're proposing is a massive one, and frankly, if we're going to change that much, I think it might be easier to simply change and say, you can't subsidize, even out of general revenues.
That would be a lot easier to administer than what you're proposing to us, which will really be terribly hard if New York State starts charging every truck that comes through the State for police protection on the basis of some percentages that's calculated in Albany and we have to figure out whether it's true or not.
MR. BALMER: But Your Honor, I -- and this is the point I'd like to close with. What they are suggesting is also extremely sweeping. Their position really is that whenever a State uses general funds to pay for a State program or service, out-of-State business can come into the State and reap the benefits of that program without being required to pay their fair share of the program cost.
QUESTION: No, they're not saying that. They're simply saying that instead of funding it in ways which cannot be traced out of general fund revenue, you've got to impose an equal fee.
MR. BALMER: That's right. They're saying -- they're forcing you -- they're saying, you have a choice, and to the States that's a very difficult choice. The choice, they say, is either eliminate the use of general funds and finance it entirely through user fees, or you allow all out-of-State interests to come in and pay less than the full cost, forcing State taxpayers to foot the entire -- or at least most of the bill, and we would suggest that nothing in the dormant Commerce Clause warrants such fundamental interference with traditional State prerogatives in this area.
QUESTION: Thank you, Mr. Balmer.
Mr. Pincus, you have 6 minutes remaining.
REBUTTAL ARGUMENT OF ANDREW J. PINCUS ON BEHALF OF THE PETITIONERS
MR. PINCUS: Thank you, Mr. Chief Justice. I just have a few points.
QUESTION: Since you have so much time, Mr. Pincus, let me ask you a question --
QUESTION: -- before you go on to your point.
I had always thought that our truck cases had assumed that if a State could figure out the exact use of each out-of-State truck of the highways, and could charge each out-of-State truck just that amount of use, that you could charge out-of-State truckers a fee without charging in-State truckers a fee. That's my recollection of those cases.
We at least speak in those terms, that the problem with the taxes is if you're an out-of-State trucker you have to pay this flat fee no matter how much you use the highways. The implication is, well, if we could compute how much each out-of-State truck used the highways, a fee for just that use would be okay, even though you don't charge in-State truckers, as truckers, any particular amount.
Now, if that's true, how does that apply? Are highways different from garbage disposal sites?
MR. PINCUS: No, Your Honor. I think I'm going to have to disagree with your premise.
QUESTION: All right.
MR. PINCUS: What the Court has focused on in those cases -- the Commerce Clause has two of its four prongs. One is the fair apportionment test, the other is antidiscrimination. I think a lot of what you are discussing is the apportionment problem. There hasn't been fair apportionment.
Flat highway taxes do not effectuate fair apportionment. That may be related to discrimination in some situations. Flat highway taxes may not only be unfairly apportioned, they may also be discriminatory, but even if they are fairly apportioned, they also could be discriminatory, and I think that's the problem that we have here.
QUESTION: What's an example of a tax that's fairly apportioned but is discriminatory?
MR. PINCUS: This one is an example.
QUESTION: Take a preceding case, a prior case.
MR. PINCUS: I don't -- I think the Court has found that taxes are also unfairly -- are both unfairly apportioned and discriminatory. I think in the Guy case that we cited --
QUESTION: But I'm asking you for a case to illustrate the example you just gave in your answer to Justice Scalia, where the apportionment is fair, but the Court nonetheless found it discriminatory.
MR. PINCUS: In the Guy case, Guy v. City of Baltimore, which is an 1880 case that we cite in our briefs, the question was whether Baltimore's discriminatory wharfage fee, which was imposed only on non-Maryland ships, was constitutional, and there was conceded in the case that it was not an excessive fee, which I think would be a proxy for it was fairly apportioned and not excessive, but the Court nonetheless held that because it was imposed only on non-Maryland ships it was discriminatory.
QUESTION: Any other case between 1880 and the present time?
MR. PINCUS: No, Your Honor. I think this has not come up that often because I think States have recognized that the kinds of hypotheticals that have been discussed here are out-of-bounds under the Commerce Clause. They're so blatantly discriminatory that States don't enact them.
I think in the Seventh Circuit case that struck down the Indiana statute similar to the one at issue here, the Court said of course this is unconstitutional, so I just don't think it's something that has come up very often.
Let me make a couple of points. I think Mr. Balmer's argument that this statute is not facially discriminatory assumes the outcome of the compensatory tax inquiry. He's assuming that the burden on interstate and intrastate commerce is the same, but here no one knows, because the general taxes that Oregon relies on are paid both by in-State interests and out-of-state interests. Oregon taxes non-Oregonians.
QUESTION: I guess your clients chose this kind of limited administrative proceeding to follow, where the proof was strictly limited. Now, in that setting, who's entitled to prevail? Is there no circumstance under which the State could defend its scheme?
MR. PINCUS: Well, Your Honor, I think if the Court were to agree that legally Oregon -- the rules of the compensatory tax doctrine don't apply, and as the Court said in Scheiner and as Justice Ginsburg note the Court can just balance any kind of taxes in deciding whether there's equality, then I think the case would go back and Oregon would try and prove it -- maybe not in this proceeding but in another one, whether or not that's true, but I think the Court can, based on its precedents, rule here that it doesn't even -- that inquiry, factual inquiry is out of bounds at the outset.
QUESTION: That was the case you brought. You brought a strictly legal case. You can't do it no matter how cost-justified it is.
MR. PINCUS: Exactly, Your Honor, and we think that the options here are either the tax can be struck down, or the Court can say there are factual questions that will --
QUESTION: Well, you lose this case and then you may have another case to say it's not cost-justified.
MR. PINCUS: Yes, Your Honor. The excessiveness issue is open.
Let me just add one other point, which is I think Mr. Balmer conceded that if this case involved apples or other kinds of commerce it would be a different case, and this would not be appropriate. He didn't reach that conclusion, but he certainly said it's different, and I think the trash-is-different argument is one that the Court has rejected three times now and squarely rejected in Fort Gratiot and it seems to me that disposes of their case.
They admit that if this was apples, and the question was an apple inspection tax, and Oregon was here saying our apple industry is so great for our State we'd like to share the cost of inspection and not impose it solely on the growers but have other taxpayers, which may include taxpayers engaged in interstate commerce, pick up the tab, that would be inappropriate. Well, we think the same result is inappropriate here, because the Court has repeatedly that the same Commerce Clause rules are going to apply in the trash context.
One last point, in terms of what costs are covered by this fee, the statute says that the fee can't cover costs that are recovered through other means, and on page 4 of our opening brief we set forth some other even-handed taxes that do recover costs such as inspection costs.
CHIEF JUSTICE REHNQUIST: Thank you, Mr. Pincus. The case is submitted.
(Whereupon, at 10:59, the argument in the above-entitled matter was submitted.)
Argument of Speaker
Mr. Speaker: The opinion of the Court in the case of 93-70, Oregon Waste Systems versus Department of Environmental Quality of the State of Oregon will be announced by Justice Thomas.
Argument of Justice Thomas
Mr. Thomas: These consolidated cases come to us on writ of certiorari to the Oregon Supreme Court.
The State of Oregon imposes a fee on disposal of non-hazardous solid waste.
The fee for waste generated out of state is $2.25 per ton.
The fee for identical waste generated within Oregon is $0.85 per ton.
Petitioners challenge the higher fee on wastes form other states as voilation of the Commerce Clause.
The State Court of Appeals rejected their Commerce Clause challenge, and the Oregon Supreme Court affirmed.
In an opinion filed with the Clerk today, we reverse the judgment of the Oregon Supreme Court.
The negative aspect of the Commerce Clause prohibits states form unjustifiably discriminating against interstate commerce.
The Oregon fee structure facially discriminates because it imposes a higher fee on wastes from other states than wastes from within Oregon.
Absent proof that out of state waste is more costly to dispose of, the mere fact that the higher fee on such waste purports to be cost-based does not render the fee non-discriminatory.
Respondent, agencies of the State of Oregon, have failed to justify that discrimination.
Wastes from other states are identical in all material respects to Oregon waste.
Respondents' suggestion that the state has a valid interest in conferring an economic advantage on those who handle Oregon waste is in odds with the very purpose of the Commerce Clause which is to break down protections of barriers to the free flow of interstate trade.
Although respondent's claim that a higher fee must be imposed on out of state wastes to compensate for the general in-state taxes that Oregon citizens pay to ward the state?s waste reduction activities, respondents have not identified a specific tax burden imposed on Oregon citizens that is comparable and kind and agreed to the higher fee on out of state waste.
The Chief Justice has filed a dissenting opinion in which Justice Blackmun has joined.