Amicus Brief — United States Steel Corp. v. Multistate Tax Commission

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No. 76-6595" "= ™ |

IN THE » MICHAEL RODAK, JR., CLERK

SUPREME COURT

OF ‘THE UNITED STATES

October Term, 1977

UNITED STATES STEEL CORPORATION,

ET AL., ON BEHALF OF THEMSELVES

AND ALL PERSONS SIMILARLY SITUATED,

Appellants,

vs.

MULTISTATE TAX COMMISSION, ET AL.,

Appellees.

ON APPEAL FROM THE UNITED STATES

DISTRICT COURT FOR THE SOUTHERN

DISTRICT OF NEW YORK

BRIEF AMICUS CURIAE FOR THE

COUNTY OF LOS ANGELES

RE: CONGRESSIONAL AUTHORITY TO

PROHIBIT STATE AND LOCAL TAXES

AND THE APPORTIONING OF TAXES

JOHN H. LARSON

County Counsel

JAMES DEXTER CLARK

Deputy County Counsel

648 Hall of Administration

Los Angeles, California 90012

(213) 974-1833

Attorneys Amicus Curiae

For the County of Los Angeles

No. 76-635

IN ‘THE

SUPREME COURT

OF THE UNITED STATES

October Term, 1977

UNITED STATES STEEL CORPORATION,

ET AL., ON BEHALF OF THEMSELVES

AND ALL PERSONS SIMILARLY SITUATED,

Appellants,

vs.

MULTISTATE TAX COMMISSION, ET AL.,

Appellees.

ON APPEAL FROM THE UNITED STATES

DISTRICT COURT FOR THE SOUTHERN

DISTRICT OF NEW YORK

BRIEF AMICUS CURIAE FOR THE

COUNTY OF LOS ANGELES

RE: CONGRESSIONAL AUTHORITY TO

PROHIBIT STATE AND LOCAL TAXES

AND THE APPORTIONING OF TAXES

JOHN H. LARSON

County Counsel

JAMES DEXTER CLARK

Deputy County Counsel

648 Hall of Administration

Los Angeles, California 90012

(213) 974-1833

Attorneys Amicus Curiae

For the County of Los Angeles

TOPICAL INDEX

Page

Table of Authorities iii

INTEREST OF THIS AMICUS CURIAE 1

SUMMARY OF ARGUMENT 2

I INTRODUCTION 3

Il CONGRESS DOES NOT HAVE

THE AUTHORITY TO PROHIBIT

OR REGULATE STATE NON-

REGULATORY TAXATION 5

Ill LATE NINETEENTH CENTURY

CASES DO NOT SUPPORT THE

THEORY OF CONGRESSIONAL

CONTROL OF STATE TAXATION 10

IV THE TWENTIETH CENTURY --

"CENTRALIZATION" 13

Vv THE APPROPRIATE CONTROLS

ON THE STATES' POWER TO

TAX 18

CONGRESSIONAL AUTHORITY -

CONC LUSION 21

VI APPORTIONED TAXES -

INTRODUCTION 23

with an argument to the effect that the state action

there was a regulation and that the import-export

clause (Art. I, §10, cl. 2) prohibited one specie of

state regulation thus positively affirming the un-

controllable right to impose others. Justice Marshall

accepted this argument, but stated that the state action

"The sole question is, can a state

regulate commerce with foreign nations

and among the states, while Congress

is regulating it?

was not regulation but taxation. He said,

“Congress is authorized to lay and collect

taxes, etc., to pay the debts, and provide

for the common defense and general

welfare of the United States. This does

not interfere with the power of the states

to tax for the support of their own govern-

ments; nor is the exercise of that power

by the states an exercise of any portion

of the power that is granted to the United

States,"' (22 U.S. (9 Wheat.) 1, at

p. 199, 6 L.Ed. 23 at p. 71)(emphasis added).

The Court goes on,

“Congress is not empowered to tax

for those those purposes which are within

the exclusive province of the states.

When, then, each government exercises

the power of taxation, neither is exercis-

ing the power of the other. But, when a

state proceeds to regulate commerce

with foreign nations, or among the

several states, it is exercising the very

power that is granted to Congress, and in

doing the very thing which Congress is

authorized to do. There is no analogy,

then, between the power of taxation and

the power of regulating commerce... .

7.

The counsel for respondent

answer... that limitations of a power

furnish a strong argument in favor of

the existence of that power, and that the

section which prohibits the states from

laying duties on imports or exports

proves that this power might have

been exercised, had it not been expressly

forbidden; and, consequently, that any

other commercial regulation not expressly

fobidden, to which the original power

of the state is competent, may still be

made. That this restruction shows the

opinion of the convention, that a state

might impose duties on exports and imports,

if not expressly forbidden, will be conceded;

but that it follows as a consequence from

this concession, that a state may regulate

commerce, with foreign nations and among

the states, cannot be admitted...

[because] [wje think it very clear that

[the import-export clause]... is con-

sidered as a branch of the taxing power... .

"This prohibition, then, is an

exception from the acknowledged power

of the states to levy taxes... .’’

(22 U.S. (9 Wheat.) 1, at pp. 199-202,

6 L.Ed. 23 at p. 71.)

APPORTIONING STATE TAXES

HAS NOTHING TO DO WITH THE

COMMISSION ITSELF

IN ANY CASE, THE APPORTION-

MENT OF STATE AND LOCAL

TAXES HAS BEEN APPROVED

BY THE COURTS

APPORTIONMENT OF STATE

AND LOCAL TAXES IS APPRO-

PRIATE IN THE CONTEXT OF

BOTH INTERSTATE AND INTER-

NATIONAL COMMERCE

APPORTIONMENT OF "NON-

BUSINESS" TAXES IS

APPROPRIATE

APPORTIONMENT - CONCLUSION

VU STATE AND LOCAL TAXES AND

DISCRIMINATION

CONCLUSION

ii.

23

24

25

30

30

31

TABLE OF AUTHORITIES

Cases Page

Board of Trustees v. United States,

289 U.S. 48, 77 L.Ed. 1025,

53 S.Ct. 509 (1933) 13, 14

Branniff Airways v. Nebraska,

347 U.S. 590, 98 L. Ed. 967,

74 S.Ct. 757 (1954) 23

Brown v. Maryland,

25 U.S. (12 Wheat.) 419,

6 L. Ed. 678 (1827) 10, 12

Citizens Savings & Loan Assoc. v.

Topeka City,

87 U.S. (20 Wall.) 665,

22 L. Ed. 455 (1875) 22

Complete Auto Transit v. Brady,

__ U.S. __, 51 L. Ed. 2d 326,

97 S.Ct. 1076 (19755) 4, 18, 19

20, 25, 26

29, 30

Cooley v. Board of Port Wardens,

53 U.S. (12 How.) 299,

13 L. Ed. 996 (1851) 11, 13

Flying Tiger Lines v. County of

Los Angeles,

51 Cal. 2d 314, 333 P.2d 323 (1958) 24

iii.

Gibbons v. Ogden,

22 U.S. (9 Wheat.) 1,

6 L. Ed. 23 (1824) 2, 6, 7, 8

10, 11, 12

Hines v. Davidowitz,

312 U.S. 52, 85 L. Ed. 581,

61 S.Ct. 399 (1941) 26

Int'l Shoe Co. v. Cocreham,

246 La. 244, 164 So. 2d 314,

cert. den. 379 U.S. 902 (1964) 16

Japan Lines Ltd. v. County of Los Angeles,

61 Cal. App. 3d 562,

132 Cal. Rptr. 531 (1976) 24

The Licenses Cases,

46 U.S. (5 How.) 504,

12 L. Ed. 256 (1847) 9, 11, 12, 14

Mandel v. Hutchinson,

494 F.2d 364 (1974) 24

M'Culloch v. Maryland,

17 U.S. (4 Wheat. ) 316,

4 L.Ed. 579 (1819) 9

McGoldrick v. Gulf Oil Corp.,

309 U.S. 414,

84 L.Ed. 840, 60 S.Ct. 664

(1940) 14, 16

Michelin Tire Corp. v. Wages,

423 U.S. 276, 46 L. Ed. 2d 495,

96 S.Ct. 535 (1976) 6, 10

iv.

Moore v. Houston,

18 U.S. (5 Wheat. )1, 5L. Ed. 19(1820) 11

New York v. United States,

326 U.S. 572, 90 L.Ed. 326,

66 S.Ct. 310 (1946) 13

Northwest Airlines v. Minnesota,

322 U.S. 292, 88 L.Ed. 1283,

64 S.Ct. 950 (1944) 17

Ott v. Mississippi Barge Lines,

336 U.S. 169, 93 L. Ed. 585,

69 S.Ct. 432 (1949) 24

Pullman's Palace Car Co. v. Pennsylvania,

141 U.S. 18, 35 L.Ed. 613,

11 S.Ct. 876 (1891) 24, 26

Salt Lake City v. Utah Copper Co.,

294 F. 199, cert. den. 264 U.S. 590,

68 L. Ed. 864, 44 S.Ct. 403 (1924),

writ of error dismissed 267 U.S. 610,

69 L. Ed. 813, 45 S.Ct. 461 (1925) 21

Sea-Land Services, Inc. v. County of

Alameda,

12 Cal. 3d 772, 117 Cal. Rptr. 448,

528 P.2d 56 (1974) 27

Smith, Line & French Labs. v.

State Tax Comm.,

241 Ore. 50, 403 P.2d 375 (1965) 16

State ex rel. Ciba Pharmaceutical

Prods. v. State Tax Comm.,

382 S. W. 2d 645 (Mo. 1964) 16

Vv.

Standard Oil Co. v. Peck,

342 U.S. 382, 96 L.Ed. 427,

72 S.Ct. 309 (1952)

Sturges v. Crownshield,

17 U.S. (4 Wheat. ) 122,

7 L. Ed. 412

WHYY v. Glassboro,

343 U.S. 117, 21 L. Ed. 2d 242,

89 S.Ct. 286 (1968)

Wilson v. Black Bird Creek Marsh Co.,

27 U.S. (2 Pet.) 245,

7 L.Ed. 412 (1829)

Constitutional Provisions

United States Constitution:

24, 26

11

29

11

Commerce Clause 2, 4, 8, 11, 12

20, 21

5th Amendment

Texts

Business Taxes in State and Local

Governments 1972, Lexington Books

p. 1, "Opening Comments" by

Lewis C. Bell

Professor Crossky, Politics and the

Constitution in the History of the

United States (Univ. of Chicago Press

(1953))

vi.

, 28, 31

31

21

12

Parkinson, The Law and Profits 19

Articles

Clark, Property Taxation of Foreign

Goods and Enterprises - A Study

in Inconsistency, 4 Pepperdine Law Review

39 (1976) 3, 6, 11

15, 23

Gilbert, Toward Full Employment,

Fortune Magazine, October 1945 22

Miscellaneous

Federalist Papers (nos. 32 and 33) 5, 6

11, 17

Supplementary Convention between

U.S.A. and the Kingdom of Sweden

Relating to Income and Other Taxes,

15 U.S.T. 1824,T.1.A.S. 5656,

Art II (c)(7) 29

vii.

No. 76-635

IN THE

SUPREME COURT

OF THE UNITED STATES

October Term, 1977

UNITED STATES STEEL CORPORATION,

ET AL., ON BEHALF OF THEMSELVES

AND ALL PERSONS SIMILARLY SITUATED,

Appellants,

vs.

MULTISTATE TAX COMMISSION, ET AL.,

Appellees.

BRIEF AMICUS CURIAE FOR THE

COUNTY OF LOS ANGELES

RE: CONGRESSIONAL AUTHORITY TO

PROHIBIT STATE AND LOCAL TAXES

AND THE APPORTIONING OF TAXES

INTEREST OF THIS AMICUS CURIAE

The Amicus Curiae collects some $3 billion

in property taxes which provide for the local

services provided to business and personal

property, including intrastate, interstate, and

1.

foreign businesses.

The assumptions made and positions taken

by the appellants will eventually lead to the possible

cancellation of ANY or ALL of this revenue.

SUMMARY OF ARGUMENT

State taxation has always "burdened" inter-

State and foreign commerce. But it does not always

regulate commerce. The framework for this case

is the interpretation of Congress' power under the

commerce clause. That clause has been misunder-

stood in that regard since 1940.

It is time to review what our founding fathers

actually had in mind when conferring the regulation

of commerce on Congress and the power to tax on

both federal and state governments.

THE COMMERCE CLAUSE DOES NOT

CONFER ON CONGRESS THE POWER TO

PROHIBIT OR REGULATE STATE TAXES AS

LONG AS THOSE TAXES ARE NON-

REGULATORY.

The appropriate test, then, for determining

the commerce clause issues in this case is whether

some procedural aspect of the states' action is

regulatory. If, and only if, that action is

regulatory, then the usual analysis of the effect

of Congressional pre-emption of the field and the

necessity for uniform regulations can be applied.

But Congress cannot pre-empt non-regulatory state

taxation.

The foundation for these views is the

historical analysis of the commerce clause and

other provisions detailed in Clark, Property

Taxation of Foreign Goods and Enterprise --

‘ Bendy in Inconsistency, 4 Feed Law Review

The appellants' argument concerning the

apportioning of taxes in accordance with the

business activities of the taxpayer in the taxing

jurisdiction do not reflect on the commission

itself, but call into question the whole federal-

state relationship. It is clear that apportionment

of taxes is not a new concept. It is also apparent

that the appellants' arguments to the effect that

states must never have any effect on international

affairs is contrary to the states' very existence.

The states can maintain both logically and

under the constitution, a state tax system which

will gather revenue without regulating interstate

or foreign commerce.

I

INTRODUCTION

The appellant has suggested that by the act

of taxing, the states have regulated commerce.

It is important to understand, however, that

regulation and taxation are not the same thing.

As Chief Justice Marshall said in Gibbons v.

Ogden, 22 U.S. (9 Wheat.) 1, 6 L. Ed. 23 (1824),

"But when a state proceeds to regulate

commerce with foreign nations, or

among the several States, it is exercis-

ing the very power granted to Congress,

and is doing the very thing which

Congress is authorized to do. There is

no analogy, then, between the power of

taxation and the power of regulating

commerce,"

Somehow during the last 150 years courts

began to view taxation in the same way as regula-

tion, and at one time it was in vogue to test the

propriety of state taxes under the commerce

clause on the basis of whether they "substantially

burdened" interstate commerce.

Of course, whether a substantial burden was

imposed or an insubstantial one, depended in large

part on the "gut reaction” of the justice reviewing

the tax. Such tests do no good for either the

taxing authority or the taxpayer.

Perhaps the most detailed set of criteria

supplied by the Court under the commerce clause

was set forth in its recent opinion in Complete

Auto Transit v. Brady, U.S. __, 51 L.Ed.

3d 326, 97 S.Ct. 1076 (1977).

This same criteria is appropriate to

determine when a tax becomes regulatory.

Thus, the appellants’ reliance on the

Commerce Clause is misplaced in that Congress

does not have the authority the appellants contend

the Commission is taking.

4.

II

CONGRESS DOES NOT HAVE

THE AUTHORITY TO PROHIBIT

OR REGULATE STATE NON-

REGULATORY TAXATION

"I am willing here to allow, in its

full extent, the justness of the reason-

ing, which requires that the individual

States should possess an independent

and uncontrollable authority to raise

their own revenues for the supply of their

own wants. And making this concession,

I affirm that (with the sole exception

of duties on imports and exports), they

would, under the plan of the Convention

{i.e., the Constitution], retain that

authority in the most absolute and un-

qualified sense; and that an attempt on

the part of the National Government to

abridge them in the exercise of it,

would be a violent assumption of power,

unwarranted by any article or clause

of its Constitution. "

This Amicus Curiae is of the opinion that

The two powers are distinct, although it is

clear that taxation may become regulatory.

The dicta of late nineteenth century cases

and its effect on the thinking of the courts is

detailed in Clark, supra, 4 Pepperdine Law Review

39.

It should be emphasized that when taxes

become regulatory, discriminating for or against

interstate or foreign commerce, they are then

regulatable by Congress (and, indeed possibly

outright void as either encroaching on an area

already pre-empted by Congress or on an area

where national uniformity is required, i.e.., in

dealing with foreign enterprises). But as this

court said,

"It is obvious that such nondiscriminatory

property taxation can have no impact what-

soever on the Federal Government's

exclusive regulation of foreign com-

merce, probably the most important

purpose of the [import-export] clause's

prohibition. (Michelin Tire Corp.

v. Wages, 423 U.S. 276 at p. 286.)

The staternent also applies to all forms of

this statement from the Federalist Papers (#32

by Alexander Hamilton) is as true today as it was

in 1789. It has been falsely assumed that the

power of Congress to prohibit state taxes exists.

But when one closely researches the cases relied

upon for this assumption, it can be seen that they

all deal with Congressional power to prohibit

state regulation of commerce.

state taxation which do not regulate commerce.

A reading of the Federalist Papers (especially

nos. 32 and 33) should be enough to convince one

that the Congressional authority to prohibit these

“neutral” taxes simply does not exist. Justice

Marshall explicitly recognized the lack of power

in Gibbons v. Ogden, supra. He was confronted

~<- «+

5. : 6.

So Justice Marshall fully confirms the absolute

right in the states to impose taxes, which Alexander

Hamilton had previously described.

Justice Taney rendered the same opinion of

the states' ability to tax without control by Congress.

"Upon examining the [Gibbons v, Ogden]

opinion, it will be seen that the Court,

when it uses the expressions which are

supposed to coutenance the doctrine of

the exclusive power in Congress, is

commenting upon the argument of counsel

in favor of equal power on the subject in

the states and the general government, where

neither party is bound to yield to the other;

and is drawing the distinction between

cases of concurrent powers and those

in which the supreme or paramount

power was granted to Congress. It

therefore very justly speaks of the

States as exercising their own powers in

laying taxes for state purpose although

the same thing is taxed by Congress;

and as exercising the powers granted to

Congress when they make regulations of

commerce. In the first case, the

state power is concurrrent with that of

the general government -- is equal to it,

and is not bound to yield."' (The License

Cases, 46 U.S. (5 How.) 504 at pp. 581-

982, 12 L. Ed. 256 at p. 291.)

In M'Culloch v. Maryland, 17 U.S. (4 Wheat. )

316, 4 L.Ed. 579 (1819), the tax was not struck

down because it was prohibited by Congress, but

9.

because it was regulatory. In Brown v. Maryland,

supra (as this court noted in Michelin Tire Con Vv.

Aue 423 U.S. 276 (1976)), the Court did not

invalidate the discriminatory tax because it was

prohibited by Congress, but because it was laid

upon import:: because of their foreign origin and

was therefore regulatory. Chief Justice Marshall

makes several attempts to explain that when such

a tax would fall upon all property uniformly, it

would be appropriate, but,

"Any penalty inflicted upon the importer

for selling the article in his character

of importer, must be in opposition to the act

of Congress which authorizes importa-

tion. '' (25 U.S. (12 Wheat.) 419, at p. 448,

6 L. Ed. 678 at p. 688)(emphasis added).

So Gibbons v. Ogden, supra, and all of the

other cases cited for the proposition that Congress'

authority to prohibit state taxation is complete,

simply do not support the theory.

Ill

LATE NINETEENTH CENTURY

CASES DO NOT SUPPORT THE

THEORY OF CONGRESSIONAL

CONTROL OF STATE TAXATION

The difference between regulation and taxa-

tion was once understood (and has been again

brought to light in Michelin Tire Corp. v. Wages,

supra). But toward the middle of the nineteenth

century the distinction between the two became

10.

clouded. Again, this process is developed in

Clark, supra.

It may be that part of the confusion in the

late 19th century stems from the fact that Cooley

v. Board of Port Wardens, 53 U.S. (12 How.)

299, 13 L. Ed. 996 (1851) tacitly lumps state powers

which are vested in Congress by the constitution

and able to be performed by the states only until

exercised by Congress, with taxing power.

(See 53 U.S. (12 How.) 299, at pp. 318-319, 13

L.Ed. 996 at pp. 1004-1005). But a close reading

of the language there does not support the conclu-

sion that the Cooley court felt that the two should

be subject to the same Congressional controls.

In fact, by referring to the very Federalist Papers

which maintain the absolute authority in the states,

Cooley, implies the contrary. (The cases cited at

53 U.S. 319, 13 L.Ed. 1005 deal with powers

° presently called "concurrent," i.e., those given

to Congress, but exercisable by the states until

Congress acts, e.g., to regulate commerce

{Wilson v. Black Bird Creek Marsh Co., 27 U.S.

(2 Pet.) 245, 7 L. Ed. 412 (1829)], to court martial

militiamen called to national duty [Moore v. Houston,

18 U.S. (5 Wheat.) 1, 5 L. Ed. 19 (1820)], and to

create bankruptcy laws [Sturges v. Crownshieid,

17 U.S. (4Wheat. )122, 7 L.Ed. 412)).

The nature of the power of taxation is

different in that,

"The power of taxation. . . is capable of

residing in, and being exercised by, dif-

ferent authorities at the same time. "

(Gibbons v. Ogden, 22 U.5. (9 Wheat.) 1

at p. 197, 6 L. Ed. 23 at p. 71.)

ll.

[neither] is bound to yield, "

(The License Cases, 46 U.S. (5 How.)

904 at p. 582, 12 L. Ed. 256 at p. 291.)

The power of taxation, then, is both a dual power ana

totally separate from the power to regulate commerce.

"There is no analogy, then, between the

power of taxation and the power of

regulating commerce." (Gibbon v.

Ogden, 22 U.S. (9 Wheat.) 1 at p. 199,

6 L.Ed. 23 at p. 71.)

So, the power of Congress, now assumed to

stop all state action in the area of taxation was

never recognized during the period at which the

Constitution was ratified and being first inter-

preted, and there is abundant authority for the

proposition that the states' right to tax is ''sacred”

(Brown v. Maryland, supra, 25 U.S. (12 Wheat.)

419 at p. 448, 6 L.Ed. 678 at p. 689). Professor

Crosskey in his book Politics and the Constitution

in the History of the United States (Univ. of

Chicago Press (1953))sets forth one possible

reason why this confusion took place. It was in

the interests of the southern states to protect

themselves from the totality of federal regulation

which Professor Crosskey theorizes. The justices

on the Supreme Court from the South were interested

in that protection and developed the ‘territorial

view" that regulation by Congress was appropriate

outside the states' borders.

The theory that Congress and the states

exercised ''concurrent"™ powers to regulate interstate

commerce grew when the theory was to the advantage

of the states. But Justice Taney called the taxation

power "equal" (The License Cases, supra, 46 U.S.

(S How.) at p. 582, 12 L.Ed. 256 at p. 291) mean-

ing capable of being exercised at the same time.

12.

The Cooley court, as previously pointed out, put

that power in the same paragraph as powers capable

of being exercised part by one party and part by

another, but not the same part by the same party

(i.e. , incapable of being exercised by two parties

at the same time).

The dicta later on toward the turn of the

century was stronger yet, and the stage was set

for the collapse of the territorial view as Congress

asserted its authority in interstate commerce

regulation. That collapse would cause the view

that Congress could prohibit state taxation (see

also, Clark, supra).

IV

THE TWENTIETH CENTURY --

"CENTRALIZATION"

The view that Congress' authority to regulate

interstate and foreign commerce was plenary and

complete, grew to mean that Congress had the

authority to regulate any state or local action in any

way affecting the commerce. One recent statement

of this misconception was made in Board of

Trustees v. United States, 289 U.S. 48 (1933).

There, the Court dealt with a state university's

contention that its property, imported from

abroad, should not be subject to customs duties

because the university was a part of the state.

Of course, the simple answer to the university's

contention is that the federal regulations cannot,

and should not, be ignored simply because it

affects property belonging to a state (see New York v.

United States, 326 U.S. 572, 90 L.Ed. 326, 66 S.

Ct. 310 (1946)). But the Court went further, assuming

13.

that because revenue was derived from the tariffs,

they were a tax as well as a regulation, But even

following this assumption appropriately leads to

the validity of the federal levy because'"’. . . neither

is bound to yield.’ (The Licenses Cases, supra,

46 U.S. (5 How.) 504 at p. 582, 12 L. Ed. 256 at p.

291.) But the Court said in speaking of the commerce

clause,

"It is an essential attribute of the power

that it is exclusive and plenary. As an

exclusive power, its exercise may not be

limited, qualified, or impeded to any

extent by state action."' (289 U.S. 48

at pp. 56-57. )

True enough when dealing with regulations of

commerce by the states or a states' efforts to

avoid federal regulations. But the state power to

tax non-discriminatorily and without the possibility

of double taxation, i.e., a neutral tax, does not

impinge on that power in the least. (Of course,

the tax must also not be so great as to prohibit

the commerce generally. Such a tax would be

contrary to the due process idea that the tax

must bear a sufficient relationship to the benefits

and protections conferred by the state on the tax-

payer. Also see argument, supra, regarding

this Court's authority to review taxes under the

due process clause as excessive. )

But the Court seized upon this lanauge

from Board of Trustees in rendering the opinion

that a customs regulation, tacitly reviewed by

Congress, could void state taxes on goods which

are in certain types of customs bond. McGoldrick

14,

v. Gulf Oil Corp., 309 U.S. 414, 84 L.Ed, 840,

60 S.Ct. 664 (1940). No state-owned property was

involved in McGoldrick v. Gulf Oil, and the court

may have been able to invalidate the tax on the ground

that it was not sufficiently related to the benefits

and protections conferred by the state (see Clark,

supra, at pp. 72-73).

Assume for a moment that the McGoldrick v.

Gulf tax were a property tax on the goods which

helped pay for fire and police protection rendered by

the locality regardless of its customs status (note

that Customs although theoretically "controlling"

bonded goods does not protect them from fire or

theft). McGoldrick logic clearly obliges local tax-

payers, including competing oil companies dealing

with domestic fuel, to pay for the privilege of protect-

ing the foreign goods.

National pruposes, including the subsidizing

of foreign enterprises or goods, are purposes of the

nation as a whole and logically should not be funded

by a restricted base of taxpayers. Congress, for

instance, may deem it advisable to grant benefits

to foreign companies doing business principally on

the East Coast in order to obtain favorable treat-

ment abroad for West Coast United States companies.

Assuming that such a subsidy passes constitutional

muster, it would be inappropriate to "fund" the East

Coast subsidy by means of a reduction in eastern

states' taxes on the foreign companies. The Western

taxpayer receives the benefit of having U.S. companies

located near him subsidized abroad, and may be affected

by those companies' improved prospects. But it is

the Eastern taxpayer who will be forced to support

local and state services to the foreign company

15.

without benefit to himself. He may have to

support it by higher taxes or by accepting a

lower level of governmental service overall. In

short, Congressional subsidies of foreign enter-

prizes should be done with national resources,

not local.

McGoldrick goes even further. If we assume,

as do some state cases (see Int'l Shoe Co. v.

Cocreham, 246 La. 244, 164 So. 2d 314, cert.

den. 379 U.S. 902 (1964); State ex rel. Ciba

Pharmaceutical Prods. v. State Tax Comm. ,

382 S. W. 2d 645 (Mo. 1964); and Smith, Kline

& French Labs. v. State Tax Comm., 241 Ore. 50,

403 P.2d 375 (1965)), that the federal government

can regulate commerce by prohibiting state action

not amounting to regulations, we assume that there

is simply no power reserved to the states.

Adequacy of a locality's fire protection most

assuredly affects interstate commerce, but can

the federal government oblige the Pasadena Fire

Department to give more protection to interstate

shipped goods than it gives to goods produced

in-state? The logic of McGoldrick, and the

appellants would answer this question in the

affirmative.

16.

We have come full circle. Alexander

Hamilton (no rabid supporter of states' rights by

any means) said that the States,

", « « possess an independent and

uncontrollable authority to raise their

own revenues for the supply of their own

wants... .. Amd... an attempt on the

part of the National Government to abridge

them in the exercise of its would be a

violent assumption of power, unwarranted

by any article or clause of its Constitution. "

(Federalist Papers No. 32) (Emphasis added).

Now, Justice Jackson can say by way of

concurring opinion,

“Congress has not extended its

protection and control to the field of

taxation, although I take it no one denies

that constitutionally it may do so. _ It

may exact a single uniform federal tax

on the property or the business to the

exclusion of taxation by the state. It

may subject the vehicles or other incidents

to any type of state and local taxation,

or it may declare them tax-free altogether.

(Northwest Airlines v. Minnesota,

322 U.S. 292, 303, 88 L.Ed. 1283,

64 S.Ct. 950 (1944). }

We have traced this development of this

change in attitude. The new one of total federal

sovereignty has been made in complete ignorance

of the proper view of the states' ability to tax.

It has come about in reaction, not only to the

17.

—

increasing speed and complexity of commerce,

but also in response to new kinds of taxes.

Controls are indeed required to insure

that those taxes remain neutral and non-

discriminatory. But those tools are available

without recourse to a wholesale revision of the

federal- state relationship.

\

THE APPROPRIATE CONTROLS

ON THE STATES' POWER TO TAX

As this Court has reviewed an increasing

number of state income and sales taxes which

affect interstate commerce, it has developed an

increasingly closer scrutiny of those taxes on

constitutional grounds. One of the latest of

these analyses appears in Complete Auto Transit

v. Brady, supra. The factors used there appear

to this amicus curiae to narrow the impact of

state taxes on interstate enterprises to the point

where they are neutral, not favoring intra-state

commerce over inter-state, and discouraging

excessive taxes generally. It is this logic which

provides the basis for protecting this and all inter-

state taxpayers from discriminatory or regulatory

taxes.

a. Nexus. The activity of the taxpayer

in the taxing jurisdiction must be sufficient to

justify some tax.

b. Relationship to Benefits. Interrelated

with the nexus test is the requirement that the tax

bear some reasonable relationship to the benefits

conferred. It may well be that two separate kinds

of tax based on the same benefit would violate this

principal (for instance, if in Complete Auto Transit,

Inc. v. Brady, supra, the tax payer had alleged

that the state was also imposing a “franchise tax"

which had no other basis than the fact that the

company was doing business in the state). This

test would also exclude the tax which is so exces-

sive that it becomes prohibitory, even if it is non-

discriminatory (for an interesting view of excessive

taxation see Parkinson, The Law and Profits).

c. Discriminatory. The tax must not

discriminate against interstate commerce. A

tax which discriminates in favor of certain parts of

interstate commerce may also be subject to this

test, since discrimination either for or against,

is regulation, and Congress' extensive rate-tax-

safety controls, in the area of national business,

might be thwarted even by favortism on the part

of a state. (The national government may believe,

for instance, that the business being favored should

receive equal treatment with other businesses. )

d. Fair Apportionment. This requirement

can be viewed as part of the relationship to benefits

test, since the benefits and protections conferred

by the taxing jurisdiction can only be conferred on

that portion of the business having a "presence" in

the jurisdiction. A tax which goes beyond that

presence (however measured) exceeds both the

nexus and relationship requirements as well as

being unfairly apportioned.

19.

eS

Thus, it can be seen that the interstate

and foreign taxpayers are protected from unilateral

regulation by a state tax. Such regulation (assum-

ing that Congress has pre-empted the field of

interstate business tax encouragement and regula-

tion), whether it be favoring the interstate taxpayer

or burdening it, must be approved by Congress.

For it is the federal government which can, by

the means at its disposal, encourage or burden

various types of business.

The tariff rates classicly demonstrate

Congress’ full authority to regulate foreign com-

merce. Any individual state's effort to increase

the burden on an importer vis-a-vis the interstate

dealer, or to decrease that burden would tip the

delicate balance established so completely by Congress.

But the interstate rates-regulations and tax

benefits are equally pre-emptive of state regula-

tion unless agreed to by Congress. For instance,

the oil depletion allowance, an effort to encourage

oil exploitation, would be thwarted if state govern-

ments imposed additional taxes on oil companies.

In like manner a state exemption in favor of

such oil companies would thwart the purpose of

Congress in repealing that allowance.

The taxpayer is protected from regulatory

State taxes.

It is also protected from regulatory procedures.

Logically, the same requirements for uniformity

of taxes should apply to the procedures for their

levy and collection. Thus, any procedures which

violate the standards of Complete Auto Transit

would also be regulatory and would constitute state

20.

regulations of interstate or foreign commerce

without Congressional approval. But it is not

ordinarily undue discrimination to tax different

classes of owners of different kinds of property

by different methods and by means of different sets

of officers. Salt Lake City v. Utah Copper Co.,

294 F. 199, cert. den. 364 U8 " 550, 66-L- Ed. 8 L. Ed,

864, 44 S.Ct. 403 (1924) and writ of error dis-

missed 267U.S, 610, 69 L.Ed. 813, 45 S.Ct.

461 (1925),

CONGRESSIONAL AUTHORITY -

CONCLUSION

There is little doubt that the requirement

for neutrality of state taxation goes beyond the

usual case language conferring on state legislatures

broad authority to classify taxpayers, although

there is little support for the present state activity

in the field of regulating commerce. But Congress'

activity in the field of commerce and tax encourage-

ments has become so complete that the states'

regulatory tax powers over commerce must give way.

Only then will foreign and interstate commerce

be brought to the point where all businesses

doing business in a state will be doing so knowing

that it is the federal government they must look

to for encouragement in their efforts. Their

cost of doing business in that state will, then, be

like any other business. The business will be

paying its fair share" of state costs (see Business

Taxes in State and Local Governments, 1972,

Lexington Books p. 1, Opening Comments" by

Lewis C. Bell), and will not be obliged to bear

another's, The federal government's authority

21.

—— 5» -- -O-

over regulation will be as complete as it ought

to be. But at the same time the states will be

assured, as they were in 1789, that they will be

able to maintain fire and police protection, keep up

their schools, help their poor and sick, all without the

threat that someday, somehow, the federal government

will order them to cease functioning.

Before the advent of federal economic incen-

tives in the area of taxation, state regulation of

commerce by tax incentives would be unthinkable.

(For a declaration of the economic responsibility

at the federal level, see Gilbert, ‘Toward Full

Employment" Fortune Magazine, October 1945, )

State donations to business were declared not to

constitute public policy (Citizens Savings & Loan

Assoc. v. Topeka City, 87 U.S. (20 Wall. ) 665,

2 L.Ed. 455 (1875).

Now government encouragement to industry

has become accepted, but the conflict between the

federal and state levels of that activity have be-

come so confusing that the businesses meant to be

aided are subject to incentives at one level of

government while being burdened at the other.

Even-handed, simplified taxation is no longer

possible by carrying on the assumption that states

can encourage or discourage businesses by means

of tax incentives while the federal government is

trying to do the same thing. That even-handed

treatment is required in today's fast paced world.

It requires that we look toward the federal system

as an opportunity to resolve local problems at the

local level, while assuring all of those who support

those efforts financially that they are not paying

more than their fair share.

22.

At the same time, the states are entitled as

a matter of right to collect the revenue necessary

for them to function, as long as that revenue collec-

tion does not regulate commerce.

VI

APPORTIONED TAXES - INTRODUCTION

The comments of the appellants on the issue

of apportioning taxes in accordance with business

activity in the state reflects the concern of business

and government alike that the states maintain a

neutral stand regarding all taxpayers. Those

comments also reflect the need to fairly apportion

taxes in the context of changes in business organiza-

tions. But it must be remembered that the

Commission's existence has little to do with the

concept which was approved by tius court in 1891

(see Clark, supra, at pp. 53, et seq., concerning the

development of the apportionment concept).

APPORTIONING STATE TAXES

HAS NOTHING TO DO WITH THE

COMMISSION ITSELF

The appellants have ascribed the problems

involved with apportioning state taxes directly

to the existence of the Commission. The short

answer to these contentions (Appellants' Opening

Brief, pp. 35-47) is that the testing of the apportion-

ment concept should be conducted in the context

of actual taxation. The existence of the Commis-

sion, or lack thereof, will not make the apportion-

ment concept disappear, and the apportioning of

state and local taxes based upon the activity of

businesses within the state does not provide any

rationale for either reducing or obliterating its

powers. 23.

The doctrine of absention encourages the states

to solve their tax disputes. California's methods

for resolving those disputes have been declared to

be adquate to bring that doctrine into play. (Mandel

v. Hutchinson, 494 F.2d 364 (1974). )

The appellants’ contentions regarding the

apportionment concept are appropriately introduced

in the courts when the apportioned taxes are imposed

by the states, as they have been in the past.

IN ANY CASE, THE APPORTIONMENT

OF STATE AND LOCAL TAXES HAS

BEEN APPROVED BY THE COURTS

The concept of apportioning taxes in

accordance with a business’ activities in a state

is not new. In 1891 property taxes were

apportioned on the basis of the business' activity

within the state. (Pullman's Palace Car Co. v.

Pennsylvania, 141 U.S. 18, 35 L.Ed. 613, 11 S.Ct.

876 (1891). That apportionment principle was approved

by various cases over the years (Branniff Airways v.

Nebraska, 347 U.S. 590, 98 L.Ed. 967, 74 5.Ct. 757

(1954); Ott v. Mississippi Barge Lines, 336 U.S. 169,

93 L. Ed. 585, 69 S.Ct. 432 (1949); Flying Tiger Lines

v. County of Los Angeles, 51 Cal.2d 314, 333 P.2d

323 (1958) and Japan Lines Ltd. v. County of Los

Angeles, 61 Cal. App. 3d 562, 132 Cal. Rptr. 531 (1976)

[this decision accepted for hearing by the California

Supreme Court]); Standard Oil Co. v. Peck, 342 U.S.

382, 96 L.Ed. 427, 72 S.Ct. 309 (1952).

24.

APPORTIONMENT OF STATE

AND LOCAL TAXES IS APPRO-

PRIATE IN THE CONTEXT OF

BOTH INTERSTATE AND INTER-

NATIONAL COMMERCE

The appellants suggest that it has been

traditional to impose taxes on a business only at

its formal place of domicile. It is true that, when

business was primiartly local in character, taxing

an organization only where it was incorporated was

factually related to the services provided by the

taxing state. The businesses performing their

activity primarily in the jurisdiction of domicile,

thus used to reimburse the very government giving

that business its benefits and protections. The

cost of the goods sold by that business waild, then,

reflect the cost of providing those benefits and

protections and would be in accordance with the

guidelines of Complete Auto Transit v. Brady,

supra.

But as businesses have become larger and

have crossed both state and national lines, this

situation changed. This Court recognized that

the most dynamic and expanding industries of the

last century, the railroad companies, were

receiving services from jurisdictions other than

their technical domicile. The railroads' keeping

their movable property in the other jurisdictions

created the strain on the other jurisdictions'

governmental support. The ability of those other

jurisdictions to attempt to recoup that cost was

affirmed early (Pullman's Palace Car Co. v.

Pennsylvania, supra).

25.

pentane nea s

But it was not until Standard Oil Co. v.

Peck, supra, that the apportionment concept was

applied to prohibit the jurisdiction of technical

domicile from taxing property on a basis not

reflecting that property's activity in the jurisdic-

tion. (That case would also be supported by the

guidelines of Complete Auto Transit v. Brady, supra. )

There must be little doubt that during the

period between Pullman's Palace Car Co. v.

Pennsylvania, supra, and Standard Oil Co. v.

Peck, supra, some states were, by imposing taxes

not related to the level of activity in the jurisdic-

tion, actually creating multiple taxation.

The appellants contend that apportioning

state taxes will cause multiple taxation. It is

probable that any development of state and/or local

taxation will create this difficulty, and the courts

must resolve these difficulties as soon as practical.

But the desirability of adopting our taxes to changing

circumstances remains.

The international commerce situation

provides additional ad hoc complications to which

the appellants point. They rely on these complica-

tions, first, for the proposition that no apportion-

ment of state taxes should take place, and, second,

that the Commission should be disbanded because

it supports the apportionment concept.

Although the international difficulties do not

support the appellants' conclusions, as previously

pointed out, it is appropriate to deal with those

problems, because state taxation, like state or

local treatment of aliens general, does impact

26.

upon international affairs. The appellants would

suggest that because change in the taxation of

foreign businesses will cause their governments

to complain, that change must not be undertaken.

But it has been accepted by both our federal govern-

ment and other countries that the states do exert

an independent sphere of action with which the

federal government may not interfere. The

federal government has both the authority and

the duty to take appropriate steps to maintain

a consistent foreign policy including reimbursing

aliens for treatment which was not compensated

for under state law.

We have seen that the states possess the

authority to tax as long as that taxation is not

regulatory (being non-prohibitory, non-

discriminatory and related to the governmental

services rendered). When the states impose

any such tax uniformly on all businesses which

are conducting activity within its borders, they

will probably impose it on some foreign interests.

It is possible that some such tax will not dovetail

with the taxes imposed upon the foreign business

by its own country or by another foreign country.

Taxes on our country's businesses may run

this same risk (see Sea-Land Services, Inc. v.

County of Alameda, 12 Cal. 3d 772, 117 Cal. Rptr.

448, 528 P.2d 56 (1974)).

But to suggest that a state tax must follow

some pattern based more on tradition than upon

the fact of benefits and protections conferred

gives up a state's ability to obtain reimbursement

for the governmental services it renders.

The taxation of an interstate or international

business only where it is domiciled, as the appellants

27.

appear to suggest, would lead to escapes from taxation

since the domicile state could impose taxes related to

the benefits it confers and all other states would be

obliged to collect no tax.

How do state and local taxes fit into the

federal system and international affairs? From

what has been said above, it is clear that the states

may not treat foreign businesses any better or

worse than interstate businesses. The states

have the duty not to regulate foreign commerce

(Hines v. Davidowitz, 312 U.S. 52, 85 L. Ed. 581,

61 S.Ct. 399 (1941)). (It is this Amicus Curiae's

position that the states may not regulate interstate

commerce without Congressional approval because

of the many rates, tax, and safety laws affecting

virtually every phase of interstate commerce,

including the amount of profit.) But to say that

states may not impose a tax which is legitimate

under this country's laws is to say that states

may not obtain reimbursement for services they

render only because those services are rendered

to foreign enterprises. Such subsidies of business

activity would do more to cause confusion in inter-

national relations than any of the problems posed

by appellants. The cost of doing business in

California should be the same with respect to

the amount of in-state activity (whether measured

by property, sales, employees or whatever) for

intra-state businesses as for interstate or

foreign businesses. The appellants propose that

the measure be different for businesses operating

from outside the state.

A government's ability to tax depends, in

the long run, upon its evidencing good faith and

reasonability. Insofar as government creates

28.

"special'' distinctions for "special" people, it

does less than its best, and the states and localities

should not distinguish between taxpayers on the

basis of the geographic location of the taxpayer's

domicile. (WHYY v. Glassboro, 343 U.S. 117,

21 L. Ed, 2d 242, 89 S.Ct. 286 (1968).) Our

treatment of foreign enterprises by the states

and localities must be the same as the treatment

we provide our own nationals. This concept is

supported by the legal analysis above as well as by

the treaties to which this country is a party (see

Supplementary Convention between U.S.A. and the

Kingdom of Sweden Relating to Income and Other

Taxes, 15 U.S. T. 1824, T.1.A.S. 5656, Act Il

(c)(7).

APPORTIONMENT OF "NON-

BUSINESS" TAXES IS APPROPRIATE

One of the features of the apportionment

of taxes to which appellants object is the taxation

of rents and other "non-business" income at

the location of the income producing property.

Surely, the "traditional rule" for allocating

the taxes on this income provides cogent reasons

for apportionment. To say that Delaware should

receive the benefits of taxing rent income from

property located in California would seem to run

contrary to the guidelines provided by Complete

Auto Transit v. Brady, supra, as a tax not

related at all to the benefits and protections provided

by Delaware.

29.

APPORTIONMENT - CONCLUSION

Thus, the impact of appellants' apportion-

ment arguments leads one to conclude that

apportionment is proper especially in the context

of international businesses whose domicile gives

no more benefits to that business than does a state

domicile of an active multi-state business. The

governments ought to receive a return for the

business activity within their jurisdictions and

apportionment is the means by which that may

be accomplished, as long as the Complete Auto

Transit tests are satified.

Vu

STATE AND LOCAL TAXES, AND

DISCRIMINATION

The appellants’ contentions which are logically

related to the actual activities of the Commission

are primarily dealt with at appellants’ opening

brief, pp. 48-51. The important aspect of this

portion of the appellants’ brief is that it consists

of suggestions made by the Commission. No

matter how onerous, discriminating, or abusive

an organization's suggestions may be, it would seem

that some action be actually instituted before the

14th Amendment can be brought into play. The

appellants have concluded only that the letters

from which they quote show that the Commission

may discriminate, assumedly at some time in the

future.

30.

There is indeed a problem of discrimination

in the area of state and local taxation. But the

ultimate conclusion must be that states do not

the authority to differentiate between intrastate,

interstate, and international commerce.

They have, and ought to have, the authority

to impose levies, which are non-regulatory, non-

discriminatory, and non-prohibitory, on any business,

and suggestions by the commission, or the equally

vocal business lobby do not constitute state action.

CONCLUSION

Subject to any 5th Amendment limitations

which may apply, Congress has the authority to

grant foreign businesses subsidies and exemptions

in return for favorable treatment for United States

businesses abroad. It does not have the authority

to exempt such a business, or all business, from

state taxation, as long as that state taxation does

not regulate. But the states’ taxation must be

uniform.

As long as the states' taxes are uniform and

appropriately related to the benefits conferred

and to the activity of the taxpayer within the

state, those taxes represent nothing more than a

cost of doing business in the jurisdiction.

The goods sold by such businesses should reflect

the benefits conferred, and subsidies are regula-

tions of commerce which are not within the power

of the states, but of national concern.

Thus, the appellants’ claim that the compact

takes away Congress' power is not borne out under

31.

its commerce clause rationale. As long as the

states do not regulate in their taxing policies,

they not only avoid treading on Congress' powers,

they create an atmosphere of certainty, uniformtiy,

and fairness which must be the hallmark of govern-

ment founded on the God-given right of its citizens

to participate in its affairs.

Respectfully submitted,

JOHN H. LARSON

County Counsel

JAMES DEXTER CLARK

Deputy County Counsel

Amicus Curiae

For the County of Los Angeles

32.