Reply Brief — Ford Motor Credit Co. v. Department of Revenue

4 —

| Supreme Court, U.S.

es FILED |

LL] AUG 4 tage

No. 88-1847 | JOSEPH F. SPANIOL, Jp

a

In The

Supreme Court of the United States

October Term, 1988

o—

FORD MOTOR CREDIT COMPANY,

Appellant,

DEPARTMENT OF REVENUE, STATE OF FLORIDA,

Appellee.

. 2

ON APPEAL FROM THE DISTRICT COURT

OF APPEAL OF FLORIDA, FIRST DISTRICT

>-

BRIEF OF APPELLANT OPPOSING

MOTION TO DISMISS OR AFFIRM

>

James E. TriBBe*

Douc as H. STEIN

BLACKWELL, WALKER, FASCELL

& HoeHL

2400 AmeriFirst Building

One Southeast Third Avenue

Miami, Florida 33131

Telephone: (305) 358-8880

*Counsel of Record for

Appellant

—

oe

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

ate Be Boat bt

QUESTIONS PRESENTED

The Department of Revenue, State of Florida

(“DOR”) charges that Ford Motor Credit Company

(“FMCC”) and the Amici Curiae have misstated the ques-

tions presented. DOR then restates the questions in a

manner that emphasizes its contention that the intang-

ibles subjected to Florida’s tax have a Florida situs and

have never entered into the stream of interstate com-

merce. In this brief FMCC will demonstrate that DOR’s

position based on an assumed Florida situs of the intang-

ibles is fallacious, and that FMCC has correctly stated the

questions as follows:

1. Whether Florida’s district court of appeal can

create an exception to the internal consistency test prom-

ulgated by this Court that applies on a per se basis to

intangible property taxes.

2. Whether a tax which has multiple bases for appli-

cation and which potentially subjects intangible property

owners engaged in interstate commerce to double taxa-

tion violates the internal consistency doctrine.

In addition to presenting reply argument on those

questions, FMCC will address the two preliminary issues

raised by DOR:

1. Whether FMCC’s right of review by direct appeal

under 28 U.S.C. §1257 (1982) is preserved by the amend-

ment adopted by Pub.L. 100-352, §§3, 7, 102 Stat. 662

(1988); and

2. Whether FMCC, as a non-domiciliary, has stand-

ing to challenge Florida’s intangible tax law.

a

ii

PARTIES

The parties are those named in the caption of this

brief. The correct designation of the appellant is Ford

Motor Credit Company, without the added “Inc.” as erro-

neously indicated in the Jurisdictional Statement. The

correct designation of the appellee is Department of Rev-

enue, State of Florida. The status of FMCC’s affiliates and

subsidiaries remains the same as stated in the Jurisdic-

tional Statement.

iii

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED ....................0000- i

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ARGUMENT OF REASONS WHY THE MOTION TO

DISMISS OR AFFIRM SHOULD BE DENIED..... 1

I

FMCC’S RIGHT OF APPEAL TO THIS COURT

WAS PRESERVED BY THE PUBLIC LAW EFFEC-

TING THE 1988 AMENDMENT TO 28 U.S.C.

REESE ERG eG ea dbdd cdeeeesscercccecscss 1

I

DOR’S ARGUMENTS THAT FMCC’S INTANG-

IBLES HAD A LEGITIMATE TAXABLE SITUS IN

LORIDA AND NEVER ENTERED THE

EAM OF INTERSTATE COMMERCE LACK

MERIT AND DO NOT REFUTE THE EXIS-

TENCE OF A SUBSTANTIAL FEDERAL QUES-

aver ascccveccsecsccesecs 3

Il

FMCC, AS A NON-DOMICILIARY FLORIDA

TAXPAYER, HAS STANDING TO CHALLENGE

FLORIDA’S INTANGIBLE TAX UNDER THE

COMMERCE CLAUSE, BASED ON THE

POTENTIAL FOR DOUBLE TAXATION AND

NON-COMPLIANCE WITH THE INTERNAL

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iv

TABLE OF AUTHORITIES

Page

Cases:

American Ry. Express v. Levee, 263 U.S. 19 (1923)...... 3

American Trucking Ass’ns, Inc. v. Scheiner, 483 U.S.

mei) OE WEED AMD QUDOTD occ eccsdesccsuececccucss 5

Armco Inc. v. Hardesty, 467 U.S. 638 (1984) ...... 4, 5, 6

Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984)...... 9

Commonwealth Edison Co. v. Montana, 453 U.S. 609

FOOSE rer (Errore eee ee er TTT Ere ee 4

D.H. Holmes Co., Ltd. v. McNamara, 486 U.S. __,

ope fF be ere ST Tere 5

General Oil Co. v. Crain, 209 U.S. 211 (1908).......... 4

Goldberg v. Sweet, 488 U.S. __, 102 L.Ed.2d 607

aches bidsadabsendndidressasad eh mania ekndewn 10

Hammerstein v. Superior Court, 341 U.S. 491 (1951)..... 2

Handley v. Malden, 232 U.S. 1 (1914).................. 6

Michigan-Wis. Pipeline Co. v. Calbert, 347 U.S. 157

NEE sha dudsebss<inedh ddagedusdgenes mikeapaene es 2

Michelin Tire Corp. v. Wages, 423 U.S. 276 (1976)...... 4

Minnesota v. Blasius, 290 U.S. 1 (1933)................ 4

Mobil Oil Corp. v. Commissioner of Taxes, 445 U.S.

PE a i pins nencusepageedthceyteneryeenetsse 7

Nippert v. Richmond, 327 U.S. 416 (1946)............ 4,8

Tyler Pipe Indus., Inc. v. Washington Dep't of Reve-

nue, 483 U.S. __, 97 L.Ed.2d 199 (1987)............ 4

United States v. Healy, 376 U.S. 75 (1964)............. 2

{f Pi hn a all ee al

TABLE OF AUTHORITIES - Continued

Page

OTHERS:

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hob bub s.ck 6s évicbsescsecedevbe ie

BP EE GERI 6c voc nodevccccccseecerseoeses 3

ES RP ESET PET T ET RCT T ETT ETT TT 1

P. HARTMAN, FEDERAL LIMITATIONS ON STATE AND

EE, SND SP IED. ns s Sie dic be wsccncivessecuns 6

Pub. L. 100-352 §3, 102 Stat. 662 (1988) .............. 1

Pub. L. 100-352 §7, 102 Stat. 662 (1988) .............. 1

ARGUMENT OF REASONS WHY THE MOTION TO

DISMISS OR AFFIRM SHOULD BE DENIED

I

FMCC’S RIGHT OF APPEAL TO THIS

COURT WAS PRESERVED BY THE PUBLIC

LAW EFFECTING THE 1988 AMENDMENT

TO 28 U.S.C. §1257.

DOR’s contention that this Court lacks jurisdiction

over this appeal is baseless. The amendment to 28 U.S.C.

§1257, which eliminated this Court's jurisdiction to enter-

tain appeals from state court judgments, became effective

on September 25, 1988. Pub. L. 100-352 §§3, 7, 102 Stat.

662 (1988). The enactment, however, specifically provides

that the amendment does not “affect the right to review

or the manner of reviewing the judgment or decree of a

court which was entered before such effective date.” Pub.

L. 100-352 102 Stat. 662 (1988) (emphasis added). The

judgment of the District Court of Appeals of Florida, First

District, hereinafter referred to as the DCA, on review in

the instant case was entered on September 13, 1988, 12

days prior to the effective date of the statutory

amendment.

DOR argues that because the DCA’s decision was not

“final” according to Florida law until disposition of

FMCC’s motion for rehearing on October 12, 1988, the

decision was also not “entered” until that date. This

contention is meritless. In Florida, whether the judgment

of a court is final for appellate purposes, i.e. “rendered,”

has nothing to do with whether that judgment has been

entered. See Fla.R.Civ.P. 1.530. Although the DCA’s deci-

sion may not have been final on September 13, 1988, it

was indeed “entered” on that date.

Supreme Court Rule 11, which dictates the time for

taking an appeal in this Court, clearly contemplates that a

judgment can be entered yet not meet the “finality”

requirement essential to this Court’s jurisdiction. For

example, Rule 11.1 requires that an appeal to review the

1

2

judgment of a state court in a criminal case must be taken

within 90 days after “the entry of such judgment.” Upon

construing the older version of the rule which differed

merely by prescribing a 30 rather than 90 day period, this

Court in United States v. Healy, 376 U.S. 75 (1964), recog-

nized that the filing of a motion for rehearing of a state

court judgment does not affect the date upon which that

state court judgment is entered. The issue stated by this

Court in Healy was whether the 30 day period prescribed

by former Rule 11 “begins to run from the date of entry of

judgment or the denial of the petition for rehearing.” Id.

at 78. This Court ultimately held that the time period

began to run from the denial of the petition for rehearing.

Thus, although the judgment was not final for purposes

of this Court’s appellate jurisdiction until the denial of

the petition of rehearing, the judgment was “entered”

long before it became final.

Had Congress intended that the amendment to 28

U.S.C. §1257 should not affect only those judgments

which were “final”, rather than “entered”, before Septem-

ber 25, 1988, it presumably would have stated so. As the

judgment of the DCA was entered 12 days prior to the

effective date of the statutory amendment, the amend-

ment has no effect on FMCC’s ability to appeal the DCA’s

decision to this Court.

Equally non-compelling is DOR’s argument that

FMCC’s attempt to invoke the discretionary jurisdiction

of the Supreme Court of Florida somehow affected this

Court’s appeal jurisdiction over the DCA’s decision.

Although FMCC did attempt to invoke the discretionary

jurisdiction of the Supreme Court of Florida, that court

declined to accept the case. This Court has consistently

recognized that when a higher court declines to exercise

its discretionary authority, the judgment of the intermedi-

ate court, rather than the order of refusal by the higher

court, is the judgment reviewable under 28 U.S.C. §1257.

Michigan- Wis. Pipeline Co. v. Calbert, 347 U.S. 157, 159-160

(1954); Hammerstein v. Superior Court, 541 U.S. 491, 492

3

(1951); American Ry. Express v. Levee, 263 U.S. 19, 20-21

(1923).

In the instant case, it is the judgment of the DCA, and

not the order of the Supreme Court of Florida, which is

the subject of this Court’s appellate jurisdiction. As previ-

ously discussed, the DCA’s judgment was entered on

September 13, 1988, before the effective date of the

amendment to 28 U.S.C. §1257. The fact that the Supreme

Court of Florida declined to accept jurisdiction over the

DCA’s judgment after the effective date of the amend-

ment, has no bearing whatsoever on whether this Court is

vested with jurisdiction of this appeal pursuant to 28

U.S.C. §1257(2) (1982). This Court properly has jurisdic-

tion over the DCA’s decision entered September 13, 1988.

II

DOR’S ARGUMENTS THAT FMCC’S INTAN-

GIBLES HAD A LEGITIMATE TAXABLE

SITUS IN FLORIDA AND NEVER ENTERED

THE STREAM OF INTERSTATE COMMERCE

LACK MERIT AND DO NOT REFUTE THE

EXISTENCE OF A SUBSTANTIAL FEDERAL

QUESTION IN THIS CASE.

DOR’s argument that this case involves no substan-

tial federal question rests mainly on variations of a single

recurrent theme regarding “situs” of the intangibles sub-

ject to the tax. DOR repeatedly contends that FMCC’s

intangible property had an “actual business situs”, or a

“legitimate situs” in Florida alone, that the intangibles

never crossed state lines to enter the stream of interstate

commerce and that Florida restricted its tax to intangible

property “actually located” at all pertinent times within

its geographical boundaries. In its motion, DOR asserts

that Florida is the “actual” situs of the intangibles, as

opposed to “a fictional domiciliary situs”. (DOR’s

motion, pp.17, 39).

Those arguments are fallacious. Although the situs of

taxable property can be an important factor in deciding

4

whether a tax complies with due process, this Court has

established that locale is not determinative of a tax dis-

pute arising out of the commerce clause. In Nippert v.

Richmond, 327 U.S. 416, 423-424 (1946), this Court noted

that while every tax affecting interstate commerce has

some local aspect, it does not follow that a taxing author-

ity may use “mental gymnastics” to make that local

aspect a “fulcrum” for a tax which would discriminate

against interstate commerce.

The cases cited by DOR offer no support for the

imposition of a “locality” test as suggested by DOR. In

each, the property which was the subject of the tax was

merely “passing through” the taxing state. Minnesota v.

Blasius, 290 U.S. 1 (1933); General Oil Co. v. Crain, 209 U.S.

211 (1908). It has long been held that even nondiscrimina-

tory property taxes on goods which are merely in transit

through a state are invalid. Michelin Tire Corp. v. Wages,

423 U.S. 276 (1976). The issue in both Minnesota v. Blasius

and General Oil Co. v. Crain was whether the goods were

in transit, thereby rendering the tax invalid. The issue of

whether the tax was discriminatory was neither relevant

nor raised. Therefore, those cases have no application

here. This Court has long held that a state tax is not

“immune from commerce clause scrutiny” simply

because it attaches to only local or intrastate activity.

Rather, the Court’s goal has been “to establish a consis-

tent and rational method of inquiry focusing on the prac-

tical effect of a challenged tax.” Commonwealth Edison Co.

v. Montana, 453 U.S. 609, 615 (1981).

DOR’s argument that the “internal consistency test”

is applicable only in those cases requiring apportionment

of business income (DOR’s motion, p. 50), is the same

argument rejected by this Court in Armco Inc. v. Hardesty,

467 US. 638 (1984). “Prior to Armco, the internal consis-

tency test was applied only in cases involving apportion-

ment of the net income of businesses that more than one

State sought to tax.” Tyler Pipe Indus., Inc. v. Washington

Dep't of Revenue, 483 U.S. __, 97 L.Ed.2d 199, 219 (1987)

5

(J. Scalia, dissenting). In Armco, however, the Court pro-

moted the “internal consistency test” to a rule generally

applied to any tax which discriminates in violation of the

commerce clause:

In [Container Corp. of America v. Franchise Tax

Board, 463 U.S. 159 (1983)], the Court was dis-

cussing the requirement that a tax be fairly

apportioned to reflect the business conducted in

the State. A similar rule applies where the allegation

is that a tax on its face discriminates against inter-

state commerce.

Armco, 467 U.S. at 644 (emphasis added).

The cases of American Trucking Ass‘ns, Inc. v. Scheiner,

483 U.S. __, 97 L.Ed.2d 226, (1987) and Tyler Pipe, are

other clear and recent examples of this Court’s applica-

tion of the internal consistency test to taxing schemes

other than those taxing business income.

In D.H. Holmes, Co., Ltd. v. McNamara, 486 U.S. __,

100 L.Ed.2d 21 (1988) this Court once again recognized

that multiple taxation which discriminates against inter-

state business violates the commerce clause. The Court,

however, found that Louisiana’s use tax on personal

property had no discriminatory effect on interstate com-

merce because the Louisiana legislature had provided a

mechanism which guarded against multiple taxation of

the same property:

The Louisiana taxing scheme is fairly appor-

tioned, for it provides a credit against its use tax

for sales taxes that have been paid in other

States. ... Holmes paid no sales tax for the

catalogs where they were designed or printed; if

it had, it would have been eligible for a credit

against the use tax exacted.

D.H. Holmes Co., Ltd. v. McNamara, 100 L.Ed.2d at 28.

Implicit in the Court’s holding is that if Louisiana

had not provided a credit against taxes imposed by other

states, Louisiana’s tax would violate the commerce clause.

In D.H. Holmes, the Court also discounted the importance

of whether the catalogs were still in interstate commerce

_—

6

once delivered to Louisiana mailboxes, noting that the

factor was “largely irrelevant” for commerce clause pur-

poses. Id., 100 L.Ed. at 27. In the instant case, Florida’s

intangible property tax is imposed on property which, by

mandate of the internal consistency test, is presumed also

to be taxed by Michigan. Florida has made no provision

for a credit which would fairly apportion its tax. Florida’s

taxing scheme lacks all the qualities upon which Louisi-

ana’s tax was held to be valid. FMCC’s intangible prop-

erty is fully taxed by Florida despite the irrebutable

presumption that it is also taxed by Michigan. Florida’s

taxing scheme is not fairly apportioned and, therefore,

discriminates against interstate commerce.

DOR’s argument that a “locality” test should apply

rather than the “internal consistency test” is not only

contrary to the most recent pronouncements of this

Court, but also is logically incapable of being applied to

the instant case. DOR’s argument ignores the long estab-

lished principle that intangible property, by its incor-

poreal nature, has no physical situs. See Handley v.

Malden, 232 U.S. 1, 11 (1914).

Because intangible property has no real situs for

taxing purposes, “intangibles generally are reached by

the tax gatherers through the assertion of the power of

the taxing state over the person of those who have some

legal interest in the intangibles.” P. HarTMAN, FEDERAL

LIMITATIONS ON STATE AND Loca. TAXATION 43 (1981). Thus,

when a person with an interest in intangible property

crosses state lines, the basis for the authority to tax has

crossed state lines. “A state may not tax a transaction or

incident more heavily when it crosses state lines than

when it occurs within the state.” Armco, 467 U.S. at 545.

Yet Florida’s taxing scheme does just that: In violation of

the internal consistency test, it exposes the taxpayer to

multiple taxes on intangible property arising from inter-

state transactions, while insuring that there will be only a

single tax on intangible property arising from purely

intra-Florida transactions. Both the applicability and the

7

violation of the internal consistency test could hardly be

clearer.

It is only through the contrived provisions of the

Florida statute under review that the DOR can claim that

the intangible assets are “located” within Florida’s geo-

graphical boundaries. Only by a legal fiction can any

locale be assigned to an intangible asset.

In its effort to establish a “business situs” which does

not cross state lines, DOR relies on Florida Statute

§199.112 (1983), which conveniently provided that all

intangible property “issued in connection with the sale,

leasing, or servicing of real or personal property in this

state shall be deemed to have a Florida business situs and

shall thus be subject to taxation under this chapter.”

(DOR’s motion, p. 26). In fact, however, the statutory

criteria are plainly based on transactions that are inher-

ently interstate in character. The tax is imposed on obliga-

tions arising out of the sale, leasing or servicing of real or

personal property in the state, regardless of where the

obligations are kept, approved or paid. Additionally,

Florida law provides that sales of tangible personal prop-

erty are deemed to be Florida sales for purposes of the

intangible property tax if the tangible property is deliv-

ered or shipped to a purchaser in Florida, regardless of

f.o.b. point or conditions of sale. §199.112(1), Fla. Stat.

(1983). This provision, by its very nature, can apply only

to sales which occur in interstate commerce.

According to DOR’s theory, Florida can, by the

device of contrived legal definition, transform an inher-

ently interstate transaction into a purely local taxable

event — the ownership of Florida-based intangible prop-

erty. To permit such a contrivance would thwart the

intent and purpose of the commerce clause as interpreted

by this Court. This Court has expressly rejected essen-

tially the same argument being made by DOR. In Mobil

Oil Corp. v. Commissioner of Taxes, 445 U.S. 425, 445 (1980),

the Court held that a state-created fictional business situs

8

of intangible property does not control the issue of

taxability.

If one peels back the artificial veneer of a Florida

business situs, the interstate nature of a non-domiciliary’s

ownership of intangible property becomes apparent. Flor-

ida’s taxing scheme automatically provides that intang-

ible assets have a Florida situs if those assets arise from

property sold or leased in Florida, or if the tangible

property from which they are derived is shipped to Flor-

ida. This rule applies regardless of where documents

creating the intangible assets are kept, approved, or paid,

and regardless of the point of transfer of title of the

underlying tangible property. Based on nothing more

than “an act of mental gymnastics,” the Florida scheme

creates a fixed legal situs for intangible property as a

single “fulcrum” for the tax, thereby subjecting the prop-

erty to discriminatory multiple taxation. See Nippert, 327

U.S. at 423. Where, as here, Florida deems the legal

existence of an intangible asset to be solely in Florida, it

is inevitable that Florida will tax that intangible asset

without regard to any tax imposed by the domiciliary

state. There is no basis in the Florida taxing scheme for

doing otherwise.

DOR does not even attempt to argue that Florida’s

taxing scheme does not discriminate against interstate

commerce by permitting multi-state taxation of the full

value of the same intangible asset. Rather, DOR contends

in effect that the courts must close their eves to that

discrimination because of a legal fiction that the intang-

ible asset does not cross state lines.

9

FMCC, AS A NON-DOMICILIARY FLORIDA

TAXPAYER, HAS STANDING TO CHAL-

LENGE FLORIDA’S INTANGIBLE TAX

UNDER THE COMMERCE CLAUSE, BASED

ON THE POTENTIAL FOR DOUBLE TAXA-

TION AND NON-COMPLIANCE WITH THE

INTERNAL CONSISTENCY TEST.

DOR’s argument that FMCC has no standing to chal-

lenge those portions of Florida’s tax which pertain to the

taxation of a Florida domiciliary corporation is irrelevant

as FMCC is not challenging any tax imposed on a Florida

domiciliary. It is, however, the very existence of those

portions of the intangible tax which render the taxing

scheme discriminatory and, therefore, unconstitutional.

Thus it is necessary to examine those portions of Florida’s

tax for compliance with the internal consistency test,

which invalidates any taxing scheme which, if adopted

by all other states, would result in discriminatory taxa-

tion. Since it is Florida’s intangible taxing scheme taken

as a whole which discriminates against interstate busi-

ness, FMCC has standing to challenge the tax. As best

stated by this Court:

[T]he wholesalers are surely entitled to litigate

whether the discriminatory tax has had an

adverse competitive impact on their business.

The wholesalers plainly have standing to challenge

the tax in this Court.

Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 267 (1984)

(footnote omitted, emphasis added).

DOR further argues that this Court should refrain

from reviewing the constitutionality of the Florida statute

because double taxation has not been established in the

record and is only a “hypothetical” possibility. (DOR’s

motion, p. 55). This argument, however, ignores the very

premise of the internal consistency test. As recently reaf-

firmed by this Court, it is the possibility of discriminatory

10

double taxation which renders a tax violative of the com-

merce clause:

To be internally consistent, a tax must be struc-

tured so that if every State were to im an

identical tax, no multiple taxation would result.

Thus, the internal consistency test focuses on

the text of the challenged statute and hypothe-

sizes a situation where other States have passed

an identical statute.

Goldberg v. Sweet, 488 U.S. ___, 102 L.Ed.2d 607, 617 (1989)

(citation omitted). FMCC certainly has standing to pre-

sent to this Court the controversy at bar.

4

CONCLUSION

For the foregoing reasons, this Court should deny the

Motion to Dismiss or Affirm and note probable jurisdic-

tion of this appeal.

Respectfully submitted,

James E. Tripsie*

Douctas H. Stein

BLACKWELL, WALKER, FASCELL

& HoenH.

2400 AmeriFirst Building

One Southeast Third Avenue

Miami, Florida 33131

Telephone: (305) 358-8880

*Counsel of Record for

Appellant