CAMPS NEWFOUND/OWATONNA v. HARRISON
Camps Newfound/Owatonna Inc. (Camps) operates a children's church camp in Maine and finances its operations through a $400 per camper weekly tuition charge. The majority of its campers are out of state children. Maine's tax scheme exempts charitable institutions incorporated in the state, and provides a more limited tax benefit for institutions which principally benefit non- Maine residents so long as their weekly service charge does not exceed $30 per person. Ineligible for any exemptions, Camps challenged the constitutionality of Maine's tax exemption statute. The U.S. Supreme Court granted certiorari following a reversal of a favorable Superior Court ruling by the Supreme Court of Maine.
Did Maine's tax exemption statute violate the Commerce Clause?
Legal provision: Article 1, Section 8, Paragraph 3: Interstate Commerce Clause
Yes. In a 5-to-4 opinion, the Court held that Maine's tax exemption statute violated the dormant commerce clause since it selectively awarded greater tax benefits to those institutions which served mostly state residents, while penalizing institutions that conducted mostly interstate business. By imposing such selective benefits on a commercial activity in which it did not directly participate, the Court found Maine's governmental tax regulations to be an unconstitutional form of economic protectionism favoring local consumers and business providers.
Argument of William H. Dempsey
Chief Justice Rehnquist: We'll hear argument next in Number 94-1988, Camp Newfound Owatonna, Inc. v. the Town of Harrison, Maine.
Mr. Dempsey: Mr. Chief Justice and may it please the Court:
The question that is raised in this case is whether a particular provision in a Maine statute dealing with property tax exemptions for charitable organizations is or is not constitutional.
The challenge to the statute is laid upon the commerce Clause in its dormant or negative aspect, that is, without the existence of any relevant congressional action under the proviso a charity that is otherwise entitled to receive the exemption is denied that exemption if, to use the words of the statute, it is conducted or operated principally for the benefit of persons who are not residents of Maine.
Now, the petitioner is such a charity.
It was denied the exemption on those grounds, and that really is the core of the case.
Now, the remaining facts are simple.
They're not contested.
I can summarize them quite swiftly.
The matter was disposed of on summary judgment below.
The petitioner is a Maine corporation.
Its only activity is to conduct a summer camp for children in the town that is now Harrison that is the respondent in this case.
It is dedicated to serving Christian Science families.
There are not a great many Christian Science families in the State of Maine, and accordingly it recruits and advertises outside the State broadly, and it serves principally people, children who are not residents of the State of Maine.
Indeed, during the three tax years in question about 95 percent of the campers that were served at the camp came to the camp from other States, States other than Maine.
Unknown Speaker: Why should the taxpayers of Maine subsidize charity to people outside of Maine?
I don't know why they should be compelled to do that--
Mr. Dempsey: Well, they're not--
Unknown Speaker: --by the Commerce Clause.
Mr. Dempsey: --Surely.
The purpose, Justice Scalia, which is asserted... and let me go directly to that.
The purpose that is asserted to be the purpose on the face of this statute is a quite reasonable purpose.
It is to confine the dedication of the resources of the State, of the community, to the benefit in these particular areas of residence of that State.
Now, that purpose is as legitimate as the purposes that were served in the waste disposal cases that you've had before you, the purposes of encouraging private industry, all the purposes that are listed in the opinion of the courts in Chemical Waste, for example.
There's nothing at all sinister about the purpose.
The question, as in almost all of these cases, is whether or not the means that were adopted to achieve that purpose impacted improperly upon interstate commerce.
Unknown Speaker: Do those other cases... those other cases don't involve as proximately as this one does the... in effect the expenditure of State money.
It seems to me that this... that is, the granting of a tax deduction to charities, it's just like giving charities the State money.
I don't know that those other States involve... those other cases involve that.
Mr. Dempsey: Well--
Unknown Speaker: It seems to me this is closer to the situation in which the State is a market participant, and the State chooses to purchase its goods only from in-State companies.
Mr. Dempsey: --Well--
Unknown Speaker: Which it's entitled to do.
Mr. Dempsey: --Let me try to address that question in the two aspects in which I understand it.
In terms of its being a... the equivalent of a tax expenditure, your first point, that, as I believe you yourself have indicated in your concurring opinion in the West Lynn Creamery case, is true of all exemption and credit cases, and the Court, as you pointed out, has always regarded tax exemptions and credits as being the equivalent of taxes themselves.
So that if you take a case that I think is closely on point, the Darnell case, involving a property tax again, exemption upon lumber that was produced in the State that was involved, an exemption for that lumber but not for others, that amounts to a tax expenditure, or, if you wish, a subsidy.
In the Bacchus case, the exemptions that were granted there to the liquors that were produced in the State of Hawaii were in fact tax expenditures on behalf of those people, of those manufacturers.
Unknown Speaker: Well, logically there's... it's hard to see a difference between a tax exemption and a direct subsidy, isn't there?
Mr. Dempsey: That's precisely what I'm trying to say.
Unknown Speaker: But you say the Court has drawn that distinction.
Mr. Dempsey: I'm sorry, Justice O'Connor.
Unknown Speaker: But you say the Court has treated them differently.
Mr. Dempsey: This Court has treated them the same.
Unknown Speaker: I mean, what if it were a direct subsidy of cash to a Maine charity--
Mr. Dempsey: Right.
Unknown Speaker: --based on how many Maine residents were served by the charity.
Mr. Dempsey: Precisely.
Unknown Speaker: Would that be all right for Maine?
Mr. Dempsey: That's a very interesting question.
Let me try to move into it more gradually, if you will, and I want to come back to the market participation question that Justice Scalia raised, because these are really the dual, dual justifications that the State advances in this case.
Either it's like market subsidy... market participation, or it's like subsidy, or both.
Let me just preliminarily, though, note a problem with that argument.
The State, as you know, is not here.
The State participated... it intervened as a defendant in the trial court, but when it lost it did not pursue its appeal to the Maine law court, and it has not taken advantage of its opportunity to participate in this proceeding, so the defense of the State statute is left to the town of Harrison.
Excuse me, Justice--
Unknown Speaker: That's because the tax goes to the county, not the State, this real property tax?
Mr. Dempsey: --I... yes, I'm sure that's right, but... in terms of fact, but the reason for the State's participating at the trial court level and not appealing is a matter that I am in no position to comment on at all.
There may be precedent for that in this Court, but I've not seen a case in which a State statute has been attacked as unconstitutional in which the State participated in the... at the trial court level and then abandoned the case coming before you, but I--
Unknown Speaker: But the tax... the tax in this case was the town's tax--
Mr. Dempsey: --Town's tax.
Unknown Speaker: --that was authorized by State law.
Mr. Dempsey: Yes.
Yes, correct, Justice Ginsburg.
Yes, so you could--
Unknown Speaker: And while you were outlining the, is it like a subsidy, is it like a participant in the market, it's... is it at all relevant that real estate... taxes on real estate go back a pretty long way, and I thought that the original... that that thought had little to do with commerce, but had to do very much with the public service that the charity, or most traditionally the church, was supplying for the local community.
Mr. Dempsey: --Yes.
Unknown Speaker: And not some notion of worldwide benefit.
Mr. Dempsey: Well, I... let me make sure that I understand your question correctly, Justice Ginsburg.
Unknown Speaker: I'm asking you to... whether this... we can say real estate taxes originate... exemptions from real estate taxes--
Mr. Dempsey: Yes.
Unknown Speaker: --you don't tax the church property... from something that had to do with benefiting locals, and that's why we... that's why these exemptions from the real estate... real estate doesn't move from one State to another like lumber does.
Mr. Dempsey: No.
Unknown Speaker: Is there something special about real estate where an exemption from the tax might be supportable in that area and not in others?
Mr. Dempsey: Well, let me put it this way.
If you were to take that view and distinguish between the real estate and personal property taxes, for example, because after all personal property does move, then you would have an awkward situation here, because part of this tax was personal property, and part was realty.
My first point is that that makes an awkward distinction in this particular case, as it would in any case.
My second response would be that, consider Darnell.
That was a personal property tax on lumber that was brought into the State from another State, the exemption being given to lumber that was produced in the State of Tennessee.
Now, if they could escape the effect of Darnell simply by transforming the form of the tax, they could then levy the tax on the real property, the warehouse in which the lumber was stored.
Now, I'm suggesting that if that kind of an exception is made, it would open the door to all kinds of manipulation of taxes in order to take advantage of that single loophole.
Unknown Speaker: Not if it's limited to charity.
Mr. Dempsey: Now... yes.
Unknown Speaker: Before you can decide that there's been discrimination against out-of-State commerce, you have to decide that you're dealing with two taxpayers who are similarly situated, and why isn't it entirely reasonable to say that they are not similarly situated where a charitable... where this deduction is at issue where one of the taxpayer provides charity to the citizens of Maine--
Mr. Dempsey: Right.
Unknown Speaker: --and the other one does not.
Mr. Dempsey: Right.
Unknown Speaker: Why are they similarly situated?
I don't think you can run that argument in the normal commercial case where all you can say is that one is an outlander, the other one isn't.
Mr. Dempsey: --All right--
Unknown Speaker: But here one is giving something--
Mr. Dempsey: --Yes.
Unknown Speaker: --gratis to the citizens of Maine.
Why doesn't that make that taxpayer different?
Mr. Dempsey: I understand... I understand, Justice Scalia, the force of that reaction to the case.
Now, let me try to catch up with the strands of questions that I have, because they're all related, and I don't want to lose track of any one of them.
Let me go to the church support by property tax, because that's in a way related to the very last question you asked, Justice Scalia.
I suggest to you that... and the market dominant, market participation and the subsidy issue.
I suggest that if the State were here, it would be very, very reluctant to make the market participation or subsidy argument.
There are in every State... I'm sure there are statutes, exemption statutes for church property.
Now, if, as the respondent argues, what the State is doing here by virtue of market participation is somehow purchasing camping services for the benefit of its residents, or subsidizing the camps for the benefit of its residents, then, by parity of reasoning, it is somehow purchasing religious services from the churches.
Unknown Speaker: No, but isn't the answer to that that it's purchasing a great number of other things, too, and for that reason it doesn't fall afoul... I mean, it's purchasing all sorts of secular benefits on the same ground for that reason it doesn't fall afoul of establishment.
Mr. Dempsey: Oh, I'm sure it doesn't fall afoul of establishment, Justice Souter, but the reason it doesn't is because it's not market participation.
The State, as Justice Scalia, as in the New Energy-Limbach case, the State here is not purchasing anything from anyone.
Unknown Speaker: I don't think the argument is that the State is a market participant.
I was just arguing that by analogy to the reason we think market participation is okay--
Mr. Dempsey: Right.
Unknown Speaker: --and you can discriminate against your out-of-State citizens when you're a market participant--
Mr. Dempsey: Right.
Unknown Speaker: --so also you can do it in this situation, where you're dealing with someone who is providing a... you know, a service gratis--
Mr. Dempsey: A service gratis, yes.
Unknown Speaker: --to the State.
Mr. Dempsey: All right, well let me address... but just before I forget, Justice O'Connor, on the subsidy question, of course, the subsidy defense does not have the same quality of imprimatur from this Court as yet as the market participation test does, but as I've indicated, for my purposes I'm perfectly wiling to assume, arguendo, that any sort of a subsidy is immune from the dormant Commerce Clause just... because this just isn't subsidy, that's all.
It's, as in Limbach, it's a tax, as Justice Scalia said.
It's the primeval function of the Government in laying and collecting taxes.
Now, what is suggested is that... and I really thought from the start that this is the way in which this case might develop.
It really hasn't developed this way until right now, and that is to suggest that there is some sort of an exception for charities that is analogous to the market participation, or the subsidy of that, indeed, as an exception.
Now, the respondent abstains from making that argument.
That doesn't mean that it's not a good argument, but I point out that we did say at the outset well, let's consider, this issue, and the respondent says no, we're not trying to draw that distinction.
I think myself that the respondent is correct in doing that, because it seems to me it can't possibly... or shouldn't, anyway, make a difference whether you're dealing with a nonprofit or a profit.
Let me just start at that sort of primitive... on that primitive basis.
Nonprofits in this country, and that's what we're talking about, are big business in every sense of the word, except that they don't make a profit.
In terms of their employment, in their purchases, in their interstate commerce that they affect, they are big business.
Now, instead of taking camps for a moment... but they're in business.
They're in business in the State of Maine, as Justice Souter, I'm sure, is aware.
Unknown Speaker: Before you go too far down that road--
Mr. Dempsey: Yes.
Unknown Speaker: --as I understand this law, it doesn't apply to all nonprofits.
Mr. Dempsey: Correct.
Unknown Speaker: It applies to only those... they have to sell their services for no more than $30 a week, isn't--
Mr. Dempsey: No.
No, you're quite right.
Unknown Speaker: --Do you know any--
Mr. Dempsey: If they have a modest charge then they get a modest exemption, but if they charge more than $30 then they lose the exemption entirely.
Unknown Speaker: --Then they lose the exemption.
Mr. Dempsey: Right.
Unknown Speaker: Now, do you know anybody that can possibly run a camp for $30 a week without giving a lot of that away for free?
Mr. Dempsey: Well--
Unknown Speaker: So you're not just talking about "nonprofits", you're talking in every case under this law about companies who are giving away stuff free to residents of Maine.
Mr. Dempsey: --No, we're talking about nonprofits here who serve primarily citizens of Maine whom they charge $1,000 a week, who get the exemption.
Unknown Speaker: That applies only to when they're serving out-of-State people, and it's $30.
Mr. Dempsey: If they're serving primarily or principally Maine citizens, then they may charge $1,000 or $2,000, and they get the exemption.
Unknown Speaker: I see, and the $30 applies only to out-of-Staters?
Mr. Dempsey: No.
If you serve primarily out-of-State citizens but only charge $30 a week, then you lose only part of your exemption.
Unknown Speaker: I see.
Mr. Dempsey: So--
Unknown Speaker: Fifty thousand, which might not be the lion's share of the tax anyway, right?
Mr. Dempsey: --The... oh, the tax in this... if you're asking about the--
Unknown Speaker: Well, it depends on what is the value of the property.
Mr. Dempsey: --What is the value of the property.
In this case, the tax in each of the tax years in question averaged about $22,000, so it does depend entirely on the... so what you have--
Unknown Speaker: I'm glad you clarified that.
Mr. Dempsey: --Yes.
So what you have--
Unknown Speaker: So we really are talking--
Mr. Dempsey: --Right.
Unknown Speaker: --just about charitable organizations.
Mr. Dempsey: --a protected relationship with the State, nursing homes, camps, some of which are... many of which are nonprofit, but they are in competition directly with these charities, so-called charities, and these people lose the exemption, and they lose the exemption because they serve too many people from out of State.
Unknown Speaker: Would a hospital lose its exemption if it took a lot of out-of-State patients?
Mr. Dempsey: The hospitals are not covered by this provision of the statute, Justice Stevens, and I should point that out.
This proviso applies only to the... now, I'm saying that without really being certain, and I'm going to consult, when I sit down with my colleague, Mr. Dale from... because what we have in the State of Maine, and it's not my field, goodness knows, is a statutory system in which a number of different categories fall under different provisions.
So that, for example, Bates and Bowden and Colby, who serve, certainly, more nonresidents than they do residents, don't... are not subject to this proviso because that provision of the statute does not burden with this proviso, so it's only this section which deals with so-called benevolent and charitable organizations, a catchall, but does identify with particularity some types, camps, nursing homes, boarding homes, and mental health treatment facilities of communities, and then whatever else falls within the catchall, and I've got to get the answer as to whether hospitals do or not.
Unknown Speaker: Well, at least you've given me the answer for a mental institution.
If they took too many out-of-State patients they would lose--
Mr. Dempsey: Mental... community mental treatment centers, so it would not be a mental hospital.
But take a nursing home.
Now, nursing homes, obviously, there are private, there are profit-making nursing homes, there are nonprofit nursing homes.
If you're on... close to the border of whatever State you're close to the border of and you serve more than half... now, the division as to what is principally and what is not has not been made, but let's say it's more than half people from the other State, you lose your exemption, and you're in competition with those other nonprofit nursing homes.
Unknown Speaker: --And that's true--
--If it were pro rata, would you have the same... would you have a constitutional objection?
Suppose it said to the extent that you serve people from out of State you don't get the exemption, but to the extent that you serve, so in your case you could get 5 percent exemption because you have 5 percent from in-State.
Mr. Dempsey: No.
My argument would be the same, because my argument has to do, when they're getting to interstate commerce, you can approach that problem in different ways, as I indicate.
We focused on the impact on interstate commerce because of Edwards v. California and a long line of cases bringing it within the affirmative and the dormant Commerce Clause interstate transportation and the effect of statutes on it, but the effect would be there anyway.
Unknown Speaker: Well, what is the effect, the harm that you're complaining about?
Can you be precise about that?
Mr. Dempsey: Yes.
Well, what you have here is a plain incentive to these organizations to limit the number of nonresidents that they serve.
Now, they can do that in order to get the tax exemption if they're close to the edge.
They can do it by... yes.
Unknown Speaker: But your camp isn't even within that range.
Mr. Dempsey: We're not close.
Unknown Speaker: I mean, you describe some things, this will give camps like yours an incentive to take people only from in the State, but it's... your camp can't operate... that's not what it is.
Mr. Dempsey: Not without a massive conversion to Christian Science in the State.
We're in great difficulty, yes.
Unknown Speaker: So it's not going to have that impact.
Mr. Dempsey: It is not.
Unknown Speaker: What is the impact that you have?
Mr. Dempsey: All right... but I don't want to leave that, because I think the statute is attacked on its face, and surely you must contemplate in judging the probable impact of the statute situations in which by imposing a quota, or imposing a differential fee schedule, a camp, or a nursing home, or whatever, could qualify, so--
Unknown Speaker: Do we know, in fact, that there is any such camp in the entire State of Maine--
Mr. Dempsey: --That's--
Unknown Speaker: --where there would be that... they say, gee, we're pretty close to the 50 percent mark so we have to serve in-State people not out-of-State?
Mr. Dempsey: --No.
The record does not disclose... the record... all that the record shows is that there are some camps that qualify for the exemption and some that don't, and that's all.
Unknown Speaker: What if the statute granted a charitable exemption only to charities domiciled or headquartered in the State of Maine?
Mr. Dempsey: Absolutely, without any question in my judgment that is perfectly all right, and indeed, I think it is natural, normal, to be expected, proper, in every way reasonable for a State to say we're not going to grant a charitable property tax exemption unless this charity is here, doing work to benefit the people of this State.
Unknown Speaker: Well, why?
I don't have any problem with that at all.
I mean, you can be there without doing work to benefit the people of the State.
Your domicile can be there--
Mr. Dempsey: Right.
Unknown Speaker: --and all of your charity can be expended in Bangladesh.
Mr. Dempsey: Right, but I'm going beyond that, beyond the Chief Justice's question, in saying I think it's also proper to say that the charity must perform charitable services in the State.
Now, we don't... that question isn't here.
This camp is open to everybody in the State of Maine--
Unknown Speaker: But that's a different question than, you can be domiciled in the State, have all of your operations in the State, but everybody you serve is from out of State.
Mr. Dempsey: --That could well be, and all that I'm suggesting is that a requirement that a charity expend... if this is the question--
Unknown Speaker: But the Chief's question... I--
Mr. Dempsey: --not only be domiciled there but spend money in the State.
Unknown Speaker: --Mr. Dempsey--
Mr. Dempsey: Yes.
Unknown Speaker: --I thought the Chief's question was, suppose the Maine law was, charities who are domiciled in this State are exempt from real property taxes in this State.
I thought you answered that that would... you gave an unequivocal, that would be okay.
Mr. Dempsey: Absolutely, in my judgment.
Unknown Speaker: So what... so let's take a charity situated in Maine, operating only in Maine--
Mr. Dempsey: Right.
Unknown Speaker: --but serving only children from India.
Your answer is that that would get--
Mr. Dempsey: I... I--
Unknown Speaker: --That would be constitutional.
I mean, there would be no--
Mr. Dempsey: --Would be unconstitutional?
Unknown Speaker: --I'm sorry.
Mr. Dempsey: No.
Unknown Speaker: It serves only people from out of State.
Mr. Dempsey: Right.
Unknown Speaker: There wouldn't be any complainant.
Mr. Dempsey: Let me see if I can... this is a question, of course, I considered as soon as I started on this case.
What happens to a State that wants to make sure that a charity that gets an exemption does something for the people of the State, and... excuse me.
Unknown Speaker: How does it do that?
Mr. Dempsey: Well, it's been my view, and there's no case law on this that I know of, but it's been my view that it is appropriate and proper for a State to say not only must the corporation be a Maine corporation, which this statute does require, but that it's got to do something in the State of Maine.
Now, some of my amicus curiae friends would not agree with me on that issue, you know, I think.
Unknown Speaker: Can we get back to the question of how people situated as your client is, how they're harmed.
Mr. Dempsey: Yes.
Unknown Speaker: Because we've already established that at least for this category of camp they're not going to change the composition of the people who come to them, and we don't know whether any such entities that would decide to take--
Mr. Dempsey: Right.
Unknown Speaker: --We just don't know that.
Mr. Dempsey: Yes.
Unknown Speaker: So what is... what other harm are you complaining about?
Mr. Dempsey: Well--
Unknown Speaker: You're complaining about the tax.
Mr. Dempsey: --Complaining about the--
Unknown Speaker: You're out of pocket, I suppose is your big complaint.
Mr. Dempsey: --Well, but I mean, that's right, Justice Scalia.
Unknown Speaker: Yes, but you can't--
Mr. Dempsey: In other words, we are suffering a financial loss, and what the record does show is that part of that is passed on to the campers and part of it detracts from the ability of the camp to perform certain services.
That's the other line of interstate commerce approach to this problem that one could take.
Unknown Speaker: --But if you're just complaining about, there's this tax and you don't like to pay it, suppose Maine has a higher sales tax than other States, and it could cost you more to operate in Maine because of that?
Mr. Dempsey: No, but if... if the sales tax or the real estate tax or any tax is imposed upon an organization because it serves too many people from out of the State... a hotel, a motel, any kind of a service... a grocery store.
Because it serves too many people from out of the State, that involves a competitive relationship between those organizations and organizations that get the exemption within the State, and that's a financial burden that disadvantages them.
Unknown Speaker: But you're not competing with charities that serve Maine people.
That's not... I don't see the competitive situation.
Mr. Dempsey: Well, I'm--
Unknown Speaker: Because you just started out by saying, no, we wouldn't change... our camp is for Christian Scientists from all over the United States.
Mr. Dempsey: --No, but just... now, that point has been made by the law court that we're not really in competition with anybody else because we serve just Christian Scientists.
Now, that argument has, it seems to me, a rather unfortunate ring to it, but taking that... and ignoring that, the fact is that other camps are in the State of Maine and they're open to Christian Scientists, Science families, so that we're competing for that group.
Unknown Speaker: You're competing to give away money, not to make a profit.
It's unreal to talk about competing to give away money.
I can give away more money than you can.
Are you hurt if someone else gives away more money than you're giving away?
I don't understand that.
That is not competition to my mind.
Mr. Dempsey: Justice Scalia, nonprofits are nursing homes... just looking at the way that nursing homes operate, or any kind of a treatment facility, any kind of nonprofits, they are in competition for contributions, they are in competition to build up their staffs, they're in... you've got the evidence of their competition every day in the mails.
They are in relation one to the other in competition, and they are affecting interstate commerce.
And I don't want to leave the point that you made, Justice Ginsburg, without noting again that this statute is being attacked on its face, and Justice O'Connor, the question you raise about kind of a graduated subsidy to me is a very difficult question.
I will just say that.
I think that clearly the State could have done what it wanted to do here by eliminating the tax exemptions and providing vouchers to the citizens of the State to use however they want.
Unknown Speaker: Could it do it by saying every organization, that every charitable organization that serves the citizens of this State gets a $1 deduction from its income tax each time it serves a citizen of the State?
Could it do that?
Mr. Dempsey: No, I don't think so.
Unknown Speaker: I think it could.
Mr. Dempsey: Well, I--
Unknown Speaker: Well, as I understand, your argument is, even if you lose on this point about the parity of competition, your argument, as I understand it, is essentially the same, because you say, number 1 you can't draw a charitable versus for-profit distinction because in fact they are both businesses in a given place, and number 2, even apart from competition, you are discouraging interstate activity.
Mr. Dempsey: --Exactly.
Unknown Speaker: And that's the essence--
Mr. Dempsey: Exactly.
That is the essence of the argument.
Unknown Speaker: --Yes.
Can you tell me, what is the philosophy that allows you to concede, in the voucher hypothetical, there would be no Commerce Clause violation?
What is the basis for the distinction between that case and this?
Mr. Dempsey: In that case, with each citizen armed with a voucher to go wherever, there would be no incentive on the part of any camp to limit its service to non-State people.
There just wouldn't, that's all, so that aspect of the case just disappears in the context of a voucher system.
In the context of a subsidy system that's graduated to out-of-State service, then you're getting to the edge, it seems to me, of where the Court has been moving in terms of validating subsidies.
A flat subsidy would be okay.
That kind of a subsidy I think there's a question about.
I would like to reserve the balance of my time.
Unknown Speaker: Very well, Mr. Dempsey.
Mr. Plouffe, we'll hear from you.
Argument of William L. Plouffe
Mr. Plouffe: Mr. Chief Justice, and may it please the Court:
Before addressing in detail the three arguments in my brief which I use to support the conclusion or the results achieved by the Maine law court, I want to address two fundamental points which I think should be addressed at the outset.
The first one is that there is no Federal constitutional right for a nonprofit organization to receive a tax exemption from local property taxes.
The second fundamental point is that State legislatures have great latitude in deciding who should be tax exempt and who should not be tax exempt.
This is especially true, I believe, when we are talking about taxation from real estate tax, or exemption from real estate taxes which really are a quintessentially local matter.
I would suggest to you that that discretion of State legislatures extends to being able to determine what benefit Maine residents in this case are to achieve... are to receive in return for this tax exemption.
In response to the amici in this case, who, from reading their briefs--
Unknown Speaker: You're asserting that, unlike other tax exemptions, this is a quid pro quo type of tax exemption.
They're giving this one because the State is getting something gratis from these organizations, and that distinguishes it from other tax exemptions.
Mr. Plouffe: --Fundamentally, Justice Scalia, that is one of my arguments, that this is like the market participant exemption in Hughes v. Alexandria' Scrap and the Massachusetts Council case involving the City of Boston.
Unknown Speaker: So it's like, for example, we give a special exemption to our farmers, only to our local farmers because they keep the land green and they in addition provide employment, and they maintain the State as primarily agricultural.
I mean, is that a justification--
Mr. Plouffe: Justice Breyer, this is--
Unknown Speaker: --for discriminating against out-of-State farmers?
Mr. Plouffe: --This actually is quite unlike that kind of a subsidy or--
Unknown Speaker: Oh, I understand that.
I understand that.
My question really is, if we're going to start looking to local benefits as a basis for discriminating against out-of-State travel or commerce, what road are we going down?
Doesn't that erode most of the Court's jurisprudence?
Mr. Plouffe: --I don't think so when we're talking about exemptions for charities, and the reasons are these.
First, what is being returned by the charity to the people are in the nature of governmental services, services that the Government otherwise would provide.
Feeding the hungry, sheltering the homeless.
Unknown Speaker: And that means, then, that in fact the hungry in other States, the children who want to travel to the local hospital across State lines, the people who want to travel across State lines to get an education, all of the different people out of State that want to use commerce to take advantage in-State... you see, I'm saying, so?
Mr. Plouffe: The--
Unknown Speaker: Or weekend canoeing at Camp Okefenokee.
I don't know that a State would provide that if a charity wouldn't provide it.
Don't those people use commerce?
Aren't they discriminated against just like the out-of-State farmer?
What actually is the distinction that arises out of the fact that it's a charity?
Mr. Plouffe: --Well, the second distinction is that the other exemptions that are addressed by this Court... for example, in West Lynn Creamery, there were two problems with that.
One, it was intended to give a competitive advantage.
There really is no competitive advantage here, and secondly, the tax that was collected--
Unknown Speaker: Well, why is there no competitive advantage?
Suppose they get an identical camp that just has 95 percent of its residents are children from Maine.
Why isn't there a competitive advantage?
Mr. Plouffe: --Well, of course, the fundamental discrimination that we draw is between for-profit camps and nonprofit camps that receive an exemption.
Unknown Speaker: But they're competing.
Mr. Plouffe: There's also competition there, Justice Stevens, and--
Unknown Speaker: But let me... I just want to challenge you on your no competitive advantage.
You have two nonprofit camps.
One has 55 percent Maine children there, and one has 35 percent Maine.
Doesn't one have a competitive advantage if it gets an exemption and the other does not?
Mr. Plouffe: --Well, part of the answer I think is, what is the competition?
Is it to dispense more charity, to feed more homeless... more homeless people, or to shelter more homeless people?
I really don't look at that in terms of competition.
In a case like, situation like this, one camp--
Unknown Speaker: Actually, you dispense more charity by losing more money, I assume.
Well, of course there are universities which are charitable in some respects, anyway, and they say that each education they give out costs more than the student pays.
Nonetheless, they compete for students.
Mr. Plouffe: --Of course, universities in Maine are under a separate section of the statute and this provision we're talking about which, primarily, benefits doesn't apply to them.
Unknown Speaker: Yes, but they can be under this section of the statute if you win the case.
Mr. Plouffe: If the State legislature were to so determine.
Unknown Speaker: Right.
If you win this case, the State legislature, or whoever makes these decisions in Maine, can say, Bates, Colby, et cetera, are all going to be fully taxed if they have this high proportion of out-of-Staters, isn't that so?
Mr. Plouffe: Well, we haven't done that.
Unknown Speaker: No, but you can, can't you, if you win this case?
Mr. Plouffe: It's legislative discretion.
Could a legislature do it, and to the amici I would say, legislators could choose to tax colleges and universities.
Unknown Speaker: That's not so scary.
I mean, the legislatures right now, no matter how we come out on this case, could simply eliminate the tax deduction for public... for private universities and choose to subsidize, give some of the in-State tax money to those in-State universities that have a majority of in-State students.
They can do that, right?
Mr. Plouffe: They could do that, Justice Scalia.
Unknown Speaker: So this horrible can come about no matter how we come out in this case.
Mr. Plouffe: There is no constitutional right to a tax exemption.
Unknown Speaker: No, but they couldn't give the subsidy to a church camp, could they?
Mr. Plouffe: Ah.
That's the Walz question, Justice Stevens.
Unknown Speaker: Yes.
Mr. Plouffe: And I would like to address the Walz question because that has been brought up in the reply brief.
The... Justice Burger's opinion in Walz, Chief Justice Burger's opinion in Walz specifically avoided focusing on the secular good works that churches do as the rationale for granting them an exemption.
He focused rather upon the history of how we have treated churches and religious organizations in this country since its founding, and before that, how England treated them, and he also focused upon wanting to avoid the entanglement between Government and the churches that could come about.
If we did tax them and they didn't pay their taxes, we might have to foreclose on their property.
Justice Douglas, dissenting, to another view.
He said, this is over some secular good works.
To get to the issue made in the... by the camps, or the petitioner in their brief, this Court actually, I think, dealt with the problem that is raised by the subsidy to the churches in Regan v. Taxation With Representation, when then Justice Rehnquist, now Chief Justice Rehnquist, wrote that in fact exemptions... this was under a case involving a 501(c)(3) exemption, and the petitioner felt that they were being discriminated against because they engaged in lobbying activities, and under 501(c)(3) could not be granted that status so contributions to the petitioner were not tax deductible.
And Chief Justice Rehnquist wrote first that the exemption is really the equivalent of a subsidy or even a cash grant... those are the words that were used, cash grant... and that really the Government has no obligation to subsidize the First Amendment activities in that case of the petitioner.
And in a footnote, the Chief Justice acknowledged Walz, and did not find it to be at variance with this case with Regan, where they were dealing with clearly secular matters, so I think the Court has addressed the problem that has been brought up by the petitioner.
Unknown Speaker: Mr. Plouffe, what is the cut off for being... serving... for qualifying for this exemption?
You have to serve dominantly Maine residents, but what is it, 50 percent?
What is it?
Mr. Plouffe: Justice Ginsburg, the statute says principally benefits, and throughout the course of this litigation we have treated this as being 51 percent.
With respect to the other sections of the statute that have been raised, if I could take this opportunity to do that, hospitals are... hospitals licensed by the Maine Department of Human Services are in a separate section of the statute that doesn't apply.
Unknown Speaker: Let me stay where the division is, because do I understand the statute to work this way: we have two camps, say, for the blind.
One serves 50 residents of Maine and it's exempt from this tax.
The other serves 50 residents of Maine and 50 residents from elsewhere in the United States.
It doesn't get the exemption, yet it's providing the same services.
Mr. Plouffe: That would be up to the local assessor, who acts as an agent of the State, to determine whether or not the 50-50 meets the test of principally--
Unknown Speaker: Well, let's make it 60-40 so we won't run into that problem, 40 percent from Maine, 60 percent from outside.
Mr. Plouffe: --That--
Unknown Speaker: No exemption at all.
Mr. Plouffe: --That would be true if... if the nonexempt entity chose to be insular, not to provide any other services to the surrounding people, and that's one of the problems in this case.
If the statute--
Unknown Speaker: I'm not sure I... it's a camp for the blind, and it serves the same number of Maine people as the camp that serves only Maine people, but it's a larger camp so it also takes in a lot of people from out of State, so it's rendering exactly the same benefits to the State of Maine, but it's also including these other people.
Mr. Plouffe: --Let me answer your question directly.
Under... if that is all that camp did in terms of dispensing charity, then the answer is yes, it would not get the tax exemption and the other camp would, even though they both serve the blind.
But the point I wanted to make is, when read carefully, this statute doesn't focus on the residency of the campers, or in your hypothetical the residency of the blind people.
The statute focuses on how the charity spends its money, and certainly in the case of the summer camp they're usually going to spend their money just on the kids who pay the money, the tuition money, but they could choose to do things like open their beautiful beach to the people of Harrison, and that would be a benefit to Maine people that could be included in the computation of, do they principally benefit Maine people, but they don't do that.
Unknown Speaker: But a camp that served just Maine residents would not have to do that.
Mr. Plouffe: A camp, because they would already be serving Maine people--
Unknown Speaker: So you're right back to where you started.
There's a discrimination between in-State and out-of-State campers.
Mr. Plouffe: --There's discrimination drawn, Justice Kennedy, based on the benefit to Maine people or no benefit to Maine people--
Unknown Speaker: How long has this law been in effect?
It seems to me it's more trouble than it's worth.
Computing... how do you value the use of a beach, for example?
Has this thing been around a long time?
I mean, I see endless litigation over this.
Mr. Plouffe: --The provision that we are arguing about--
Unknown Speaker: Maybe we should strike it down for foolishness or something.
Mr. Plouffe: --The provision that we're arguing about was enacted in 1957.
It was upheld by the Maine supreme court in 1963, in a case that was decided on Fourteenth Amendment ground, in which the law court said, we don't think that it's irrational or unreasonable for the State of Maine... and this is peculiar to charities... for the State of Maine to require that its people get something in return... in return for this forgiveness of taxes, and that was a Fourteenth Amendment case.
This Court, when it visited this issue before in WHYY, Inc., a similar issue, only that one was the State of incorporation of the charity, used a Fourteenth Amendment analysis, and there was dicta in WHYY, Inc. to suggest... and I admit that it is only dicta... to suggest that, had the facts been as they are here today, that may have been okay under the Fourteenth Amendment.
Now, the petitioner raised the Fourteenth Amendment claims in this case below, and the law court ruled against the petitioner, so did the superior court, and they chose not to appeal that Fourteenth Amendment decision to this Court, apparently agreeing that the statute does pass the Fourteenth Amendment test.
Unknown Speaker: Well, I think you... we accept the fact that the Fourteenth Amendment is a much more lenient standard of review on these matters of economic regulation than the Commerce Clause.
I mean, that's a given under our jurisprudence today.
That's why the other Darnell case got over... in effect overruled or rewritten in the Carolina Tax case last year.
I mean, the standards are distinctly different, so the fact that you may pass muster under the Fourteenth Amendment doesn't get you over the line on the Commerce Clause.
Mr. Plouffe: I understand, Your Honor, that the Court can and in this case is looking at this under the Commerce Clause.
Unknown Speaker: And in looking at it, what test do we apply?
It appears to be facially discriminatory against interstate commerce, so it may be a tougher standard.
Mr. Plouffe: If we choose not to use something like the market participant exception, and therefore apply the dormant Commerce Clause to it, then the question is, is it, per se, a flexible approach, and the law court chose the flexible approach.
Looking at the per se question, I think there are three things we need to look at: the statute, the statutory language, and then if it survives that, the effects of the statute, actual effects, and incurred effects.
And the statute itself, as I said before, I think focuses on the benefits that are provided by the corporation and not by the--
Unknown Speaker: Well, but if you concede that even nonprofit organizations can engage in interstate commerce you can certainly look at this, let's say, in the nursing home context as being facially discriminatory.
Mr. Plouffe: --I respectfully disagree, Justice O'Connor.
On its face it's a tax, or an exemption from a tax on real estate, number one.
We've never considered real estate under the Commerce Clause here before.
Number 2, it looks at the identity of the people who are benefited, not the identity of the people who cross the State lines.
And so I don't think that there is facial discrimination.
And number 3, as the law court said, it treats all Maine camps the same.
Unknown Speaker: May I ask--
Mr. Plouffe: There's the target.
You can go out and meet the target if you want the exemption.
Unknown Speaker: --Do you think the people benefited do not include the church that runs the camp?
Mr. Plouffe: I'm not sure that I understand the question, Justice Stevens.
Unknown Speaker: Well, you say... you look at the people benefited, and I just suggest one of the people benefited would be whatever the charity it is that gets the benefit of an exemption.
Mr. Plouffe: The Christian Science Church in Boston, for example, the church is actually owned by a separate Maine corporation.
Unknown Speaker: And supposing it... just focus on the church for a minute.
Supposing the church is near the State line and over half the people came from out of State, would the church... would you say that the church should not get its exemption because the people benefiting from the exemption are the people that cross State lines?
It seems to me the principal beneficiary of the exemption is the church itself.
Mr. Plouffe: Well, again, I think that under Walz churches are treated differently by the Court.
Unknown Speaker: And we have a church here.
Mr. Plouffe: Excuse me, Your Honor?
Unknown Speaker: We have a religious organization here.
Mr. Plouffe: We have a nonprofit Maine corporation that is not itself a church.
Churches are treated differently under the Maine statute--
Unknown Speaker: I see.
Mr. Plouffe: --and the 50 percent just doesn't apply.
It's a nonprofit Maine corporation.
They have an affiliation somehow, and I'm not exactly sure how, with the Christian Science Church that do allow only Christian Science children in, and I believe that at some point during the day they review the tenets of the Christian Science faith, but it is not a church.
Unknown Speaker: I see, but let me ask one other... you place so much emphasis on the fact that it's a real estate tax.
If it were not a charity, you would not contend, I do not suppose, that in a commercial context that the State could discriminate... have a tax exemption for businesses that sold only to Maine customers and no tax exemption for those that sold out-of-State customers?
Mr. Plouffe: I think I have a couple of responses to that, Justice Stevens.
One, I think it would fail Fourteenth Amendment analysis.
Unknown Speaker: Well, under... just confine our analysis to the Commerce Clause--
Mr. Plouffe: --and would have under Green Acre B'hai, which is the main case.
Under the Commerce Clause, I suggest that because it is a... the implications of it being exempted from a tax of real estate is that it would fall under the flexible approach, but would fail under the flexible approach because there would be no legitimate State interest.
Unknown Speaker: --Well, the interest would be to encourage local commerce, encourage transactions within the State, encourage the local economy.
Mr. Plouffe: I do not think that that would survive.
Unknown Speaker: Well, supposing there were two camps, not charitable camps but just for-profit camps.
One served out-of-State, and the other served local, and they say, we won't... we'll give a tax exemption to those serving the local people.
Would that have the same justification as this?
Mr. Plouffe: --I don't think it would.
Maybe the charity is becoming involved in my thinking, but--
Unknown Speaker: Sure it would.
I'm just suggesting that the charity is critical to your argument, and you seem to... and I don't think your real estate argument can stand without coupling it with your charitable argument, but I'm not sure what your position is.
Mr. Plouffe: --I... again, if it's real estate, then I don't think it's facial, that it's an indirect effect on interstate commerce, and because it's indirect, you look at it under the flexible approach, but I think it would fail under the flexible approach because it would not... I can't conceive of a legitimate state interest, for example, in the motel situation that's raised in the reply brief.
I can't think of a legitimate State interest for taxing a motel--
Unknown Speaker: Providing cheaper housing for local residents.
Give them a cheaper rate at the hotels, if people have marginal income.
There's certainly a State interest in having people sleep indoors at night.
Of course, you could make all of those same arguments against the market participation exception we've created.
You can say it's the same thing.
The State is simply trying to give its own citizens an advantage over out-of-State.
We've made an exception there, and we've made an exception in the subsidy area, and the issue is whether we should make an exception for charities, whether that also is a distinctive situation.
Mr. Plouffe: --And again, under Regan... Regan, I'm sorry... this Court has clearly characterized charitable exemptions as cash grant subsidies.
The amici here say they're subsidies, and they are from the general fund of the Town of Harrison.
This tax goes into the general fund to pay for municipal services, police protection, fire protection, roads, and the very services that ironically benefit the petitioner, yet they don't want to pay the tax.
But the point of the general fund is the language in West Lynn Creamery seemed to be very interested in the fact that any subsidy had to come out of a general fund.
This is a broad-based tax.
All of the people in the Town of Harrison have to pay this tax.
Unknown Speaker: Mr. Plouffe, could you... going back to Justice Stevens' hypothetical, could you explain to me why it is in the case of the two profit-making corporations as to which a distinction is made the discrimination would not have been facial?
You said it would not have been.
You said it would get the, as you put it, the flexible approach, and I don't see why.
Mr. Plouffe: I think because we're talking about real estate, and we have never applied the Commerce Clause to the taxation of real estate which doesn't move across State lines, that effects that a tax on real estate, or an exemption from a tax on real estate have on interstate commerce are indirect.
Unknown Speaker: Why the fact that real estate doesn't move across State lines?
Why is that significant?
Mr. Plouffe: Well, the language of the positive Commerce Clause--
Unknown Speaker: I mean, interstate commerce is going to be affected whether you're doing it through a real estate tax or any other form of taxation.
Why should it matter that the specific race that is taxed happens to be itself nonambulatory?
Mr. Plouffe: --Perhaps I have a narrow view of the dormant Commerce Clause, but--
Unknown Speaker: Isn't it the effect on interstate commerce that we're concerned with?
Mr. Plouffe: --We are, but the question becomes, is it per se a flexible one.
I'm saying there isn't a... there could be in the hypothetical an effect on interstate commerce, but that it would be indirect and not subject to the per se rule, and I would also add that--
Unknown Speaker: Directness and indirectness hasn't got anything to do with the fact that it's real estate that's being taxed, number 1, and number 2, I don't know where the direct-indirect distinction comes from.
Mr. Plouffe: --Well, I think that the tax on real estate may or may not be incorporated into the charge made by the for-profit organization.
There are other ways that they could handle that.
If the competitive marketplace said, gee, we just can't pass on this tax and stay in business, we'll find other ways to deal with this in the marketplace, for example, reducing staff, or reducing overhead, those types of things, it's very indirect before it gets to the consumer.
And the other issue about the hypothetical is whether or not we are going to treat consumers as articles of commerce.
Unknown Speaker: Well, nobody is arguing that you're going to treat consumers as articles of commerce.
The argument is that interstate commerce... that is to say, the movement of people back and forth, the provision of services to people from out of the taxing State... is going to be affected.
Their argument isn't... they don't make the argument that the campers are articles of interstate commerce.
Mr. Plouffe: Well, they... I think they did in their first brief.
Let's put that aside.
They certainly do make it in--
Unknown Speaker: It escaped me, but it's clear in any event that they have abandoned any such attempt if they ever made it, isn't it?
Mr. Plouffe: --They certainly have not abandoned the attempt to say that the travel of these campers across State lines is protected by the Commerce Clause.
Unknown Speaker: Well, I... are you challenging that assumption?
Mr. Plouffe: I certainly am attesting that... challenging that.
Unknown Speaker: Interstate travel is not protected under the Commerce Clause?
Mr. Plouffe: I don't read Heart of Atlanta or Edwards for the proposition put forth by the petitioners.
Unknown Speaker: Do you think that interstate travel has an effect on interstate commerce?
Mr. Plouffe: I think the provision of interstate travel by bus companies, for example, does.
I think that salesmen who travel across--
Unknown Speaker: Wouldn't these campers perhaps arrive in Maine by bus, or by plane, or by train, or some such means?
Mr. Plouffe: --But we're not taxing the plane or the bus or the train.
Unknown Speaker: No, but we're asking whether interstate commerce is affected, and if it's affected by bus travel, then I suppose this is a case in which it's affected.
Mr. Plouffe: And I'm suggesting that it would be an indirect effect and subject to the flexible approach, but I still do not read those two cases for the proposition for which they want them to stand.
Unknown Speaker: How broadly do you take charities outside the dormant Commerce Clause?
I know your position here is that charitable exemptions, real property tax exemptions shouldn't be analyzed in interstate commerce, and you've given several reasons for that, but are you saying that nonprofits and whatever exemptions the legislature, State legislature chooses to give to them is ever and always, because they're nonprofits it falls outside the range of the Commerce Clause?
Mr. Plouffe: My argument goes so far as to cover an exemption from income taxes, which was the case in Regan, Federal income taxes, excise taxes, if they would pay... having occasion to pay them, and sales taxes.
We exempt them from sales taxes and income taxes and property taxes in the State of Maine, and if they are going to challenge the impact, how the lines are drawn by the legislature in granting those exemptions, then my argument would say--
Unknown Speaker: Do we--
Mr. Plouffe: --that it's under market participation, because in each one of those cases the State is asking something in return.
We may think that it's provincialism on the part of the State of Maine to write its statute this way, but I don't think that's the question.
The question is whether or not the State legislature in Maine can do this.
Unknown Speaker: --We would never think of accusing the State of Maine of provincialism.
The... do you know of any case of ours that involves a Commerce Clause challenge to real estate taxes?
What cases of ours... or exemptions to real estate taxes.
Mr. Plouffe: I have found none, Your Honor.
I... The WHYY case is as close as I could come.
Unknown Speaker: That's very interesting.
Does it produce a sort of discrimination against out-of-State... an out-of-State church, for example, to give a tax exemption to any church that owns real estate, they're exempt from the real estate tax, but if you're an out-of-State church, of course, and happen to be located in a State that taxes church real estate, you're at a commercial disadvantage, I suppose, if you consider the attracting of parishioners as commerce.
Mr. Plouffe: I have great difficulty considering the attraction of parishioners as commerce.
Unknown Speaker: Garnering a collection plate.
Mr. Plouffe: I would say that WHYY in this Court did strike down the distinction based on the domicile of the corporation, and that was a real estate tax, and that was a charity, but it was determined under the Fourteenth Amendment.
The Commerce Clause was not mentioned at all.
If there are no other questions, I thank the Court.
Unknown Speaker: Thank you, Mr. Plouffe.
Mr. Dempsey, you have 2 minutes remaining.
Rebuttal of William H. Dempsey
Mr. Dempsey: Thank you, Mr. Chief Justice.
I just have two comments.
The... one of the questions that Justice Scalia raised in terms of how old this statute is raises another question, and also your last question about property taxes, and that is, why hasn't this Court ever seen a case like this before, and the short answer is that legislatures have not passed statutes like this before.
Now, there have been scores, thousands of statutes that we don't know anything about, but we have examined, and the respondent has, the statutes on the books.
We have discovered one in the State of Michigan that can be considered comparable.
The respondent has turned up three more.
We deny that they're comparable.
But in any case, if this statute is not absolutely unique, it is almost unique, and that says something, because the policy of the Commerce Clause doesn't have to do just with economics, it has to do with interstate comity, and we suggest that this unbroken, almost unbroken pattern of behavior by the legislatures says something about how the States feel to meet the demands of interstate comity.
Now, the last point is Justice Connor's comment and Justice Scalia's comment, I hope it goes without saying, because I didn't say it, that our case is rooted in the basic premise that this statute is facially discriminatory against interstate commerce.
Justice Scalia, I think you're absolutely... I started with this notion in the petition of certiorari.
If you apply all the ordinary canons that this Court has established over the years dealing with these cases, the other side has got to lose, in my judgment.
The only way out is to create an exception for... I wouldn't say charities, nonprofit organizations comparable to the market participation or the subsidy charity.
Now, we've advanced all the reasons that we think that that would be an unwise move on the part of the Court, but that really I think is the issue.
Mr. Chief Justice.
Unknown Speaker: Thank you, Mr. Dempsey.
The case is submitted.