1. Lecture 38 The Power to Tax and Spend
Part 5: Restrictions on Revenue Powers of States

2. This lecture We finish up out chapter on the power to tax and spend
We also finish the unit on nation-state relations
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Today we look at restrictions that may be put on states to tax

3. State Taxes on Foreign Commerce
There are some restrictions on the ability of states to tax
They cannot tax imports or exports without Congress’ assent
They also cannot unreasonably burden interstate or foreign commerce
Brown v. Maryland (1827)
A Maryland law required foreign importers to pay a license fee
Marshall strikes it down as infringing on the authority of Congress to regulate foreign commerce
This introduces the original package doctrine until they were sold, processed or broken out of their original packages
Low v. Austin (1872)
Rejected non-discriminatory taxes on imported goods being stored
So the same tax for domestic and imported

4. Michelin Tire v. Wages (1976)
Background
Michelin Tire had a warehouse outside Atlanta to store imported tires and tire products
The Gwinnett County Assessor assessed a non-discriminatory ad valorem tax
The company sues the Assessor, saying it is exempt from state taxation
They win at the trial court, but the Georgia Supreme Court reverses
The Georgia Court said after being imported in bulk, they had been sorted and arranged for sale
Question
Did the Gwinnett County tax violate the Import-Export Clause by taxing goods that maintained the character of imports?

5. Michelin Tire v. Wages- II
Arguments
For Michelin Tire (against the tax)
The packages are still in their original package or fire, sorting them does not change that
They remain as imports under Brown v. Maryland and the original package doctrine
The United States has a duty to protect these as imports
Brown v. Maryland should be affirmed
For Wages (impose the tax)
This is simply a non-discriminatory ad valorem tax
When it sorted them by, they were out of their original packaging
The exemption puts domestic companies storing goods at a competitive disadvantage
Brown v. Maryland should be overruled

6. Michelin Tire v. Wages- III
Brennan writes for an 8-0 Court
With White concurring
Low v. Austin is overruled
A non-discriminatory ad valorem tax was not what the framers had in mind to be excluded from state taxation under the Import-Export Clause
These goods were no longer in import transit
The Low Court misapplied Brown v. Maryland which really was a tax on imports
Three things to check for
Did it interfere with the Federal Government's regulation of foreign commerce?
Did it deprive the Federal Government of its exclusive right to revenues from imposts and duties on imports?
Did it interfere with the free flow of goods between the states>

7. Complete Auto Transit v. Brady (1977)
Background
Complete was a Michigan company doing business in Mississippi
Its job was to transport out of state manufactured vehicles and then brought into Mississippi by rail
They were then brought to Jackson and trucked around the state
Mississippi had a 5% tax on transportation companies for being able to do business in state
It was applied to those engaged in interstate and intrastate commerce
They paid the tax under protest and sued for a refund
They based their case on Spector Motor Service v. O’Connor (1951), which had a state tax for the privilege to do business in the state was unconstitutional if imposed on any activity in interstate commerce
The Mississippi Supreme Court upheld the tax on the grounds that it was non- discriminatory and taxed only Mississippi based income

8. Complete Auto Transit v. Brady- II
Question:
Did the Mississippi tax violate the Commerce Clause because it placed a burden on an activity associated with interstate commerce?
Arguments
For Complete (overturn the tax- get refund)
This was part of interstate commerce
Changing the mode of transportation does not alter the interstate nature of the transportation
This tax places a burden on interstate commerce, even if fairly apportioned and non- discriminatory
Spector Motor Service v. O’Connor should be upheld

9. Complete Auto Transit v. Brady- III
Arguments
For Brady and Mississippi (uphold the tax)
This only applies to business activity in Mississippi
The tax is non-discriminatory
Spector Motor Service v. O’Connor should be overruled

10. Complete Auto Transit v. Brady- IV
Justice Blackmun rules for a unanimous Court
Spector Motor Service v. O’Connor is overruled
For a tax to not burden interstate commerce, the state must show the tax
On an activity connected to the state,
Fairly apportioned to be based on intrastate commerce,
Non-discriminatory, and
Related to state services provided
Congress must also have not preempted the state
The Court ends up upholding several other state taxation laws shortly thereafter

11. National Bellas Hess, Inc. v. Department of Revenue of Illinois (1967)
What about smaller items ordered online, by telephone, or by mail order
This company (in Missouri) challenged an Illinois law requiring them to collect a use tax on goods its residents purchased from out of state
The Court struck down the tax
It established a rule that a state cannot impose tax obligations on a company unless they had a physical presence in the state
This company had no presence at all in Missouri, so they were exempt
This meant states were losing a lot of sales tax revenue to these types of companies
And this was long before the internet and Amazon.com

12. Quill v. North Dakota (1992)
Quill v. North Dakota by and through Heitkamp (1992)
Background
Quill Corporation is a large office supply company, with not employees or any tangible property in North Dakota it sold its products through a catalogue
It was the 6th largest supplier of office products in North Dakota
North Dakota amended its tax code to require companies that regularly or systematically solicit customers in the state collect and remit sales tax to the state
Quill refuses, and the North Dakota Supreme Court upholds the law
They say that the Complete case made Bellas Hess bad precedent
Questions:
Is Bellas Hess still good precedent?
Could North Dakota impose this tax?

13. Quill v. North Dakota- II
Arguments
For the Quill Corporation
This conflicts with the purpose of interstate free trade
Requiring this would subject out of state vendors to unfair burdens and obstruct interstate commerce
The company has no presence at all in North Dakota
Bellas Hess should continue to be followed
This is a question for Congress and not the courts

14. Quill v. North Dakota- III
Arguments
For North Dakota and the Tax Commissioner
Physical presence not longer achieves a fair result due to different commercial environments
Bellas Hess should be overturned in favor of Complete Auto
The company regularly and systematically solicits nearly a million dollars of business a year from North Dakota
This establishes a sufficient relationship to allow the tax
This is a constitutional issue, so it should be decided by the Court

15. Quill v. North Dakota- IV
Justice Stevens rules for an 8-1 Court
This law does not violate the Due Process Clause
Physical existence is not required here
Quill receives enough benefits to justify this tax
However, it fails under the Commerce Clause
Bellas Hess is still good law and was not undercut by Complete Auto
They disagree with the state saying there minimum contact and a substantial nexus
It is Congress that has the power to resolve this issue
They could overrule Bellas Hess by legislation, but they have not
Congress has yet to resolve this problem even today states have had to rely on voluntary agreements

16. Oregon Waste Systems, Inc. v
Oregon Waste Systems, Inc. v. Department of Environmental Quality of Oregon (1994)
Oregon Waste Systems, Inc. v. Department of Environmental Quality of Oregon (1994)
When can states use tax laws to benefit their own intrastate development?
Background
Oregon was going to impose a surcharge against solid waste generated outside the state different from solid waste generated within the state
The company here transported solid waste from Washington
They challenged the tax scheme and claimed it was a violation of the commerce clause
State courts upheld the Oregon law and they now appeal
Question: Is the surcharge that Oregon imposed on the in-state disposal of waste produced out-of-state a violation of the Commerce Clause?

17. Oregon Waste Systems, Inc. v
Oregon Waste Systems, Inc. v. Department of Environmental Quality of Oregon- II
Arguments
For the Waste Company (law violates Commerce Clause)
The Court struck down a similar scheme from Alabama
This clearly violates the commerce clause
The fee difference does not justify the discrimination
For Oregon (uphold law)
The out of state fee difference reflects a lack of subsidization
Restructuring the fee system would have no impact on interstate commerce
The real purpose was to reduce the amount of out of state waste entering Oregon

18. Oregon Waste Systems, Inc. v
Oregon Waste Systems, Inc. v. Department of Environmental Quality of Oregon- III
Justice Thomas rules for a 7-2 majority
This is clearly discriminatory on its face
The justification bears nothing when facially discriminatory
It is subject to strict scrutiny
It would have to show it had not other means but to impose the discriminatory law, but it did not, thus the law fails
Chief Justice Rehnquist, joined by Blackmun, dissenting
The cost is incidental
Oregon had a reason for imposing this because landfill space is limited
This was not a total ban as in Philadelphia v. New Jersey (1979)

19. Next lecture We move to the next chapter and section
For the final week of class
The Contract Clause
The Marshall Court
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Luckily, this chapter is relatively short