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

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4 * 1 ; ; f Supreme Court, U.S.

TOR ARGUMENT tik COPY 1 1 L E P

DISTRIBUTED CCT 24 1999

war 900 No. 88-1847 JOSEPH F. SPANIOL, JR.

IN THE

Supreme Court of the United States

OCTOBER TERM, 1990

ForD MoToR CREDIT COMPANY,

7 Appellant,

DEPARTMENT OF REVENUE, STATE OF FLORIDA,

Appellee.

On Appeal from the District Court of Appeal

of Florida, First District

REPLY BRIEF FOR APPELLANT

JAMES E. TRIBBLE

BLACKWELL & WALKER, P.A.

2400 AmeriFirst Building

One Southeast Third Avenue

Miami, Florida 33131

(305) 358-8880

MARK L. EVANS

Of Counsel: Counsel of Record

FRANK A. STOCKING ALAN I. Horow!Tz

JOHN P. VAN DUSEN PATRICIA M. LACEY

JOHN M. NEBERLE ANTHONY F. SHELLEY

Ford Motor Company MILLER & CHEVALIER, Chartered

The American Road Metropolitan Square

Dearborn, Michigan 48121 655 Fifteenth Street, N.W.

(313) 323-0537 Washington, D.C. 20005

(202) 626-5800

Counsel for Appellant

—— AL A—E —᷑ RR aE

WTLson - Eres Printing Co., Inc. - 789-0096 - WASHINGTON, D.C. 20001

TABLE OF CONTENTS

THIS COURT SHOULD REVIEW THE TAX

ACTUALLY IMPOSED BY THE FLORIDA

LEGISLATURE, NOT THE REFORMU-

LATED VERSION PUT FORWARD BY AP-

PELLATE COUNSEL.

. FLORIDA’S TWO-TAX THEORY BRINGS

THIS CASE SQUARELY WITHIN ARMCO

AND TYLER PIPE AND THUS CONFIRMS

THAT ITS TAXING SCHEME IS INVALID....

. THE INTERNAL CONSISTENCY TEST

SERVES AN IMPORTANT ROLE IN PRO-

TECTING INTERSTATE COMMERCE FROM

DISCRIMINATORY STATE TAXES ...............

. THE COMMERCE CLAUSE DOES NOT PER-

MIT MULTIPLE TAXATION OF INTANGI-

BLES THAT ARISE OUT OF INTERSTATE

. —

. THIS COURT HAS APPELLATE JURISDIC-

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— ee eS Poe ee es ae „** Pip. a R ä

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ii

TABLE OF AUTHORITIES

Cases Page

Adams Express Co. v. Ohio State Auditor, 166 U.S.

185 (1897)..... . 18, 15

American Ry. Express Co. v. Levee, 263 U.S. 19

EES Re REST a a A 17,19

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

266 (1987) 1 11

Armco Inc. v. Hardesty, 467 U.S. 688 (1984) . 2, 6, 7, 8,

11, 12

Blackstone v. Miller, 188 U.S. 189 (1903) 14

Blair v. Chicago, 201 U.S. 400 (1906) . 18

Braniff Airways, Inc. v. Nebraska Bd. of Equaliza-

tion, 8347 U.S. 590 (1954) eee neeeeeee ee 15

Central Greyhound Lines, Inc. v. Mealey, 334 U.S.

een 9

Central R. R. v. Pennsylvania, 370 U.S. 607

Ste el ESO SN ae 9

City of Canton v. Harris, 109 S. Ct. 1197 (1989) 19

Communist Party v. Whitcomb, 414 U.S. 441

( ce ee 19

Complete Auto Transit, Inc. v. Brady, 430 U.S.

r aati alain tceinaem 15

Container Corp. v. Franchise Tax Board, 463 U.S.

, WA eon - 5 15

Curry v. McCanless, 307 U.S. 357 (1939) . 14

Department of Banking v. Pink, 317 U.S. 264

c SR ESA oe 19

Fargo v. Hart, 193 U.S. 490 (1904) _.... 15, 16

Florida Steel Corp. v. Dickinson, 328 So. 2d 418

. 3

Freeman v. Hewit, 329 U.S. 249 (19469) 9

Gwin, White & Prince, Inc. v. Henneford, 305 U.S.

ERIS RES ea ees. 9, 10

Halliburton Oil Well Cementing Co. v. Reily, 373

r i ll ae 10

J.D. Adams Mfg. Co. v. Storen, 304 U.S. 307

PPTP Ee ann a 9

Japan Line, Ltd. v. County of Los Angeles, 441

. 13, 15

Johnson Oil Ref. Co. v. Oklahoma, 290 U.S. 158

(1933)

‘eu CE ee =e.

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— * d

TABLE OF AUTHORITIES—Continued

Lawrence v. State Tax Comm’n, 286 U.S. 276

(1932)

Mobil Oil Corp. v. Commissioner of Taxes, 445

U.S. 425 (1980)

New York ex rel. Cohn v. Graves, 300 U.S. 308

I

I

Pierce v. Underwood, 487 U.S. 552 (1988)

Pullman’s Palace-Car Co. v. Pennsylvania, 141

US. 18 (1291)

Shaffer v. Carter, 252 U.S. 37 (1920)

Southern Ry. v. Kentucky, 274 U.S. 76 (1927).

St. Louis v. Prapotnik, 485 U.S. 112 (1988) ........

Starkey v. Carson, 189 So. 385 (Fla. 19399

State ex rel. Seaboard Air Line R. Co. v. Gay, 35

r

State Tax Comm’n v. Aldrich, 316 U.S. 174

// SA ae

Tyler Pipe Industries, Inc. v. Washington Dep't

of Revenue, 483 U.S. 232 (1987) 2, 7, 8,

Wallace v. Hines, 253 U.S. 66 (19200)

Western Live Stock v. Bureau of Revenue, 303

U.S. 250 (1938)

Page

14

14

10

14

15

14

11, 12

15

16

iv

TABLE OF AUTHORITIES—Continued

(4th ed. 1988 ———”ñ

Statutes and Legislative Materials Page

28 U.S.C. § 1257 (1982) ....16, 18,

28 U.S.C. § 2101 (o0ů————ͤ“—æꝓ——

Pub. L. No. 100-852, § 7, 102 Stat. 664 (1988) 16

Fla. Stat. P

§ 199.032 (1983) 1 ;

§ 199.112 (1) (1983 ———————.— a

§ 220.68 (1983) ‘ ——

Fla. H. Rep. Comm. on Finance & Taxation, Fis- i

cal Note No. 2256 (Apr. 29, 1977)

Miscellaneous

1A Sutherland Statutory Construction 8 22.33 is

IN THE

Supreme Court of the United States

OCTOBER TERM, 1990

No. 88-1847

Foo MoroR CREDIT COMPANY,

0 Appellant,

DEPARTMENT OF REVENUE, STATE OF FLORIDA,

Appellee.

On Appeal from the District Court of Appeal

of Florida, First District

REPLY BRIEF FOR APPELLANT

Florida does not dispute that its tax on intangible prop-

erty, considered as a whole, fails the internal consistency

testa standard that this Court repeatedly has identi-

fied as one prerequisite for compliance with the Com-

merce Clause. The state’s effort to save the tax despite

that constitutional infirmity proceeds along three analyti-

cal paths.

First, the state attempts reconstructive surgery. It

splits the tax in two (calling one part a “business situs

intangible tax” and the other a “domiciliary intangible

tax”) (Br. 7-9), reshapes the “business situs” tax by in-

terpreting “sale” to mean something other than a transfer

of ownership (Br. 7), and then pronounces the bifurcated

and reformulated “business situs” tax (when “considered

without regard to the tax on domiciliaries”) “internally

consistent.” Br. 16. The state’s semantical shell game,

for which there is no basis in the statute, serves only to

emphasize, not to conceal, the facially discriminatory fea-

2

ture of the intangible property tax. Because Florida dom-

iciliaries engaged in intrastate commerce enjoy a kind of

“multiple activities” exemption, under which they pay

either the “domiciliary intangible tax” or the “business

situs intangible tax” but never both, the rewritten stat-

ute is indistinguishable from those struck down n Armco

and Tyler Pipe. Just as in those cases, Florida’s taxing

scheme overtly discriminates against those engaged in

interstate commerce, who receive no comparable protec-

tion against multiple taxation.

Second, the state disparages the internal consistency

test, urging the Court in effect to discard it as an instru-

ment of Commerce Clause analysis in this case. But the

state’s argument rests on the erroneous assumption that

subjecting interstate commerce to a discriminatory risk of

double taxation, as opposed to actual double taxation, is

constitutionally benign. This Court’s decisions recognize

that even the threat of multiple taxation imposes costs

that can interfere with free trade among the states.

Moreover, an actual double taxation standard not only

would necessitate an impractical inquiry into the con-

stantly changing tax laws of many other states, but also

would produce a patchwork in which a logically defective

tax would apply to some interstate businesses and not

to others, depending on the identity of the other states in

which they do business.

Third, in a frontal assault on the most fundamental

of Commerce Clause precepts, the state asserts that in-

tangible property arising out of interstate commerce may

properly be subject to cumulative unapportioned taxation

by every state that contributes to its value. The state’s

theory is grounded in a misunderstanding of this Court’s

due process decisions: while they hold that more than

one state may provide benefits and protections to the

same intangible property sufficient to confer taxing juris-

diction, they do not address the need for apportionment

in such circumstances, nor do they consider any question

of interference with interstate commerce. Under the

Court’s Commerce Clause decisions, when a tangible or

hate Sek 5 eae IE Bt eae NE |, ‘oa r

3

intangible asset has a taxable nexus with more than one

state, apportionment is required precisely to avoid multi-

ple taxation of interstate commerce.

We address each of these points in turn. We also an-

swer the state’s belated argument that appeal does not

lie in this case because the judgment under review, though |

concededly “entered” (for purposes of the statutory sav- —

ings clause) before the change in this Court’s mandatory

appellate jurisdiction took effect, gave rise only to an

“inchoate” appeal right that did not ripen until after de-

nial of discretionary review by the Florida Supreme

Court.

I. THIS COURT SHOULD REVIEW THE TAX AC.

TUALLY IMPOSED BY THE FLORIDA LEGISLA-

TURE, NOT THE REFORMULATED VERSION PUT

FORWARD BY APPELLATE COUNSEL

In its effort to portray the Florida tax as internally

consistent, the state performs an “act of mental gymnas-

tics,” Nippert v. City of Richmond, 327 U.S. 416, 423

(1946), first bisecting the tax into two supposedly sep-

arate taxes and then construing one of those two taxes to

eliminate a feature that would otherwise make it inter-

nally inconsistent even standing alone. The state has no

legitimate basis for rewriting the statute to suit its liti-

gation objectives.

Florida’s tax on intangible property is levied under a

single section of a single statute. Fla. Stat. § 199.032

(1983). The state cites neither a textual basis in that

statute nor a judicial or administrative interpretation

to support its bifurcation of the tax into a “domiciliary”

tax and a “business situs” tax. The state court decisions

applying the tax give not the slightest hint that the stat-

ute imposes two taxes rather than one. See, e.g., Florida

Steel Corp. v. Dickinson, 328 So. 2d 418 (Fla. 1976);

State ex rel. Seaboard Air Line R. Co. v. Gay, 35 So. 2d

403 (Fla. 1948) (en banc); Starkey v. Carson, 189 So.

385 (Fla. 1939).

Nor is there any foundation for the state’s reconfigura-

tion of the “business situs” definition. The statute pro-

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1

vides that intangible property has a “business situs” in

Florida if it arises out of a “sale” of personal property in

the state. Fla. Stat. § 199.112 (1) (1983). “Sale” ordi-

narily means a transfer of ownership. Until 1977, the

state believed that it had no authority under that provi-

sion to tax intangibles arising out of a sale “with an

f.o.b. point other than Florida.” J.S. App. 12; see also

J.A. 7. In that year, the legislature added a new sen-

tence to the statute specifying that a sale is “in this state

if the property is delivered or shipped to a purchaser

within this state, regardless of the f.o.b. point or other

conditions of the sale.” Fla. Stat. § 199.112 (1) (1983).

The legislature sought to prevent out-of-state sellers

[from] avoiding the intangibles tax by shipping goods

into Florida from an FOB point out of the state.“ Fla.

H. Rep. Comm. on Finance & Taxation, Fiscal Note No.

2256 (Apr. 29, 1977). It anticipated that the change

would give “Florida producers. . a slight competitive

advantage.” Jd. The amendment plainly was intended to

expand the reach of the tax, not to constrict it.

The state apparently recognizes that the resulting “bus-

iness situs” definition, even standing alone, violates the

internal consistency test. If every state were to adopt

the same provision, an interstate company would pay two

taxes on the full value of its intangible property, one to

the state in which the underlying sale takes place and one

to the state to which the property is delivered; an intra-

state company whose sales and deliveries take place in a

single state would pay only one tax. Florida therefore

asserts, for the first time since this litigation began and

in conflict with its position in the state administrative pro-

ceeding, that the statute does not treat sale and delivery

as alternative bases for finding a business situs” and that

a transfer of ownership within the state does not qualify

as a “sale” if “delivery was to occur outside Florida as

part of the sale.” Br. 24.“ The state cites nothing to

1 Ford specifically asked the state in an interrogatory whether

the tax applies to an intangible arising out of a sale in Florida if

“the property je shipped from Florida F. o. B. Fiecide) |

Sloe ee ee TP eee

5

support its bare declaration that the 1977 legislation,

instead of expanding the reach of the state’s intangible

property tax, actually narrowed it by excluding transfers

of ownership within the state.

Although the Court should view skeptically the state’s

eleventh-hour statutory reconstruction, the definition of

“business situs” is not central to the issues in this case.

Even if Florida’s current interpretation were accepted,

the statute would remain internally inconsistent. If the

same statute were enacted by every state, an interstate

company would still pay multiple taxes on the same in-

tangible property—one to its state of domicile and an-

other to the state in which the underlying tangible prop-

erty was delivered—while an intrastate company would

pay only a single tax to its state of domicile. The state’s

redefinition of “business situs” would mean only that an

interstate company in such circumstances would not have

to pay a third tax to the state in which the sale itself

took place. Double taxation of interstate commerce is no

more permissible than triple taxation.

II. FLORIDA’S TWO-TAX THEORY BRINGS THIS

CASE SQUARELY WITHIN ARMCO AND TYLER

PIPE AND THUS CONFIRMS THAT ITS TAXING

SCHEME IS INVALID

Far from masking the statute’s constitutional defect,

dividing the tax into a “business situs intangible tax”

and a supposedly separate “domiciliary intangible tax”

merely accentuates its facial discrimination against in-

terstate commerce. Under the state’s theory, a Florida

‘state pursuant to the terms of the contract for sale.” J.A. 13. The

state responded that the tax would apply. J.A. 18. It now says

that its interrogatory response was intended to address only the

“domiciliary” tax, which applies to all intangibles owned by a Flor-

ida domiciliary “without regard to business situs.” Br. 7 n.5. But

the interrogatory obviously focused on the state’s definition of “busi-

ness situs.” The state’s current reading of the response makes its

nonsensical. Since domicile alone is always a sufficient basis under

the Florida statute for taxing an intangible, it would have been no

answer to Ford’s questions about business situs to respond solely in

terms of the tax on domiciliaries.

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6

domiciliary engaged in purely intrastate

pays more than one of — taxes. St i

local bank that finances an automobile in Florida pays

only the “domiciliary” tax; it pays no “business situs”

tax, even though the intangible has a Florida “business

situs. By contrast, an out-of-state company competing

with the Florida bank must pay the “business situs” tax

regardless of whether it pays a domicili :

home state. pay omiciliaiy tax to its

That makes this case indistinguishable fro

Inc. v. Hardesty, 467 U.S. 638 (1984), Weer Virginie

imposed a wholesale gross receipts tax but exempted local

manufacturers who were subject to a separate manu-

facturing tax. The result was that “two companies sell-

ing tangible property at wholesale in West Virginia will

be treated differently depending on whether the taxpayer

conducts manufacturing in the State or out of it.” Id. at

642. Moreover, „if Ohio or any of the other 48 States

imposes a like tax on its manufacturers—which they

have every right to do—then [manufacturers] from out

of State will pay both a manufacturing tax and a whole-

sale tax while sellers resident in West Virginia will pa

only the manufacturing tax.” Id. at 644. 2

At issue here is a property tax, not a t i

tax, but the practical effect is identical. Tuo —

finaneing sales of tangible property in Florida are

treated differently depending on whether the taxpayer

is a Florida domiciliary or an out-of-state domiciliary

Only the latter pays Florida’s “business situs” tax: the

former is exempt. Likewise, if any other state were to

impose a domiciliary tax like Florida’s, a company domi-

ciled in the other state would pay both a domiciliary tax

to its home state and a business situs tax to Florida on

the same intangible property, while a Florida domiciliary

would pay only the Florida domiciliary tax. As in

Armco, the statute here facially discriminates against in-

terstate commerce in favor of intrastate commerce.

Inverting the exemption makes no diff

Florida domiciliaries are considered e 2

7

“domiciliary” tax rather than from the “business situs”

tax, the case becomes indistinguishable from Tyler Pipe

Industries, Inc. v. Washington Dep’t of Revenue, 483

U.S. 232 (1987). As in Armco, the state in Tyler Pipe

imposed both a manufacturing and a wholesaling tax

and provided that ‘local manufacturers subject to one

need not pay the other. Unlike West Virginia, however,

Washington exempted local manufacturers from the

manufacturing tax rather than from the wholesaling tax.

Despite that difference in form, the Court concluded that

the Washington scheme “has the same facially discrim-

inatory consequences as the West Virginia exemption we

invalidated in Armco.” Id. at 240. The statute “exposes

manufacturing or selling activity outside the State to a

multiple burden from which only the activity of manu-

facturing in-state and selling in-state is exempt.” Id. at

248.

The same is true here. Florida’s statute exposes to

multipie tax burdens companies that have an out-of-

state domicile or whose intangibles have an out-of-state

business situs. It exempts from that multiple burden

only Florida domiciliaries whose intangibles have an in-

state business situs. As in Tyler Pipe, the Florida

scheme impermissibly “eliminat[es] the risk of multiple

taxation” only for Florida companies engaged in intra-

state commerce, but not for “similarly situated“ com-

panies engaged in interstate commerce. Id. at 246.°

2 Florida seems strangely blind to the obvious parallel. It de-

scribes Tyler Pipe in these words: “Washington required all out-

of-state manufacturers to pay a tax when they sold their goods in

the state, without offset for any manufacturing tax they incurred,

while in-state manufacturers were granted such an offset, thus

disfavoring the out-of-state manufacturers who competed for sales

in Washington.” Br. 28-29. But Florida’s tax can be described

identically, merely by substituting “Florida” for “Washington”

and “domiciliary” for manufacturer“: Florida requires all out-

of-state domiciliaries to pay a tax when they finance a sale of goods

in the state, without offset for any domiciliary tax they incur,

while in-state domiciliaries are granted such an offset, thus dis-

8

The state argues that a different result is warranted

here because Florida’s bifurcated “business situs” tax,

unlike the West Virginia and Washington taxes, sup-

posedly “contains no pertinent exemptions.” Br. 27-28.

While neither the Florida statute as written nor the

state’s reconstruction of it uses the word “exemption,”

Florida domiciliaries pay either the “domiciliary” tax or

the “business situs” tax, but never both. Whether that

reduced exposure to taxation is called an “exemption” or

something else is of no consequence. Indeed, as far as

the Court’s opinions reveal, neither of the offending

statutes in Armco and Tyler Pipe used the word “exemp-

tion.” *

Florida’s claim that its “business situs” tax “readily

passes the internal consistency test” (Br. 28) does not

distinguish this case from Tyler Pipe. Washington’s

wholesaling tax, considered in isolation from the manu-

facturing tax, likewise would have passed the internal

consistency test: if every state adopted a wholesaling

tax identical to Washington’s, interstate wholesalers

would bear no greater tax burden than would intrastate

wholesalers. But Tyler Pipe squarely rejects Florida’s

unstated premise. The Court’s decision demonstrates

that internal consistency analysis is not conducted in a

vacuum. When the interaction of two different taxes

confers on intrastate commerce an exemption or other

benefit that is unavailable to interstate commerce, the

Court views the taxes together.

favoring the out-of-state domiciliaries who compete for financing

business in Florida.” The state’s own description of Tyler Pipe thus

demonstrates that the facially discriminatory feature of the Wash-

ington tax infects the Florida tax as well.

The West Virginia statute provided that a local manufacturer

“shall not be required to pay” the wholesaling tax. 467 U.S. at 640

n.3. The Washington statute provided that persons taxable under

the wholesaling tax “shall not be taxable” under the manufacturing

tax. 483 U.S. at 237 n.8.

9

III. THE INTERNAL CONSISTENCY TEST SERVES

AN IMPORTANT ROLE IN PROTECTING INTER-

STATE COMMERCE FROM DISCRIMINATORY

STATE TAXES

Florida repeatedly impugns this Court’s internal con-

sistency test as a “mechanical” abstraction that ignores

real economic effects. E. g., Br. 18, 34, 36, 37. At the

core of its objection is the mistaken notion that the risk

of multiple state taxation is a merely “hypothetical” in-

jury that constitutes no actual impediment to interstate

commerce.” Br. 34. As this Court often has recognized,

however, the free trade purpose of the Commerce Clause

is jeopardized when “[i]nterstate commerce [is] sub-

jected to the risk of a double tax burden to which intra-

state commerce is not exposed.” J.D. Adams Mfg. Co. v.

Storen, 304 U.S. 307, 311 (1938) (emphasis added).

See also, e.g., Central R.R. v. Pennsylvania, 370 U.S.

607, 612 (1962); Ott v. Mississippi Valley Barge Line

Co., 336 U.S. 169, 174 (1949) ; Central Greyhound Lines,

Inc. v. Mealey, 334 U.S. 653, 662-63 (1948); Gwin,

peng Prince, Inc. v. Henneford, 305 U.S. 434, 439-40

There are several reasons for that rule. First, risks

are not cost-free. An interstate business that faces the

potential burden of multiple taxation must price its

goods or services to reflect that possibility. If its intra-

state competitors face no comparable risk, the company

may suffer a competitive disadvantage that would dis-

courage it from engaging in interstate commerce. As

Justice Rutledge observed, the “uncertainties” resulting

from the “threat” of multiple taxation can produce “the

same impeding consequences” as the actual incidence of

multiple taxation. Freeman v. Hewit, 329 U.S. 249, 274

(1946) (Rutledge, J., concurring).

That observation is particularly apt here. In the fi-

nancial services industry, where the difference between

success and failure often is measured in terms of a

“basis point” (one hundredth of one percent in the yield

10

of an investment), the risk that more than one state will

seek to tax the full value of an intangible asset imposes

a real cost that can affect the way companies conduct

their business. Florida’s insehsitivity to that cost is re-

vealed in its assertion that a tax of one mill is “small.”

Br. 34 n.26. But a mill is the equivalent of 10 basis

points. In a highly competitive environment, a company

that must bear the risk of a second or third such “small”

tax may be significantly handicapped. Thus, when Ford

competes with local Florida banks for retail financing

contracts (J.A. 11), it must factor into the calculation

of its return the prospect that another state might, dur-

ing the life of the contract, impose an annual tax like

Florida’s on the same intangible asset. Because the

local bank bears no comparable risk, it enjoys a cost

advantage that may give it a decisive competitive edge.

Second, the risk of multiple taxation is likely to be-

come a reality if this Court sustains an internally in-

consistent tax like Florida’s. See Halliburton Oil Well

Cementing Co. v. Reily, 373 U.S. 64, 72 (1963). A state

tax approved by this Court serves as a convenient re-

cipe for other states seeking new revenue sources, be-

cause “[{i]f [one state] is free to exact. . a tax, other

states to which the commerce extends may, with equal

right, lay a tax similarly measured.” Gwin, White &

Prince, Inc. v. Henneford, 305 U.S. at 439. See also

McGoldrick v. Berwind-White Coal Mining Co., 309 U.S.

33, 48 (1940). That is why It jhe jurisdiction of [one

state] to tax ‘must be determined on a basis which is

consistent with the like jurisdiction of other States.’”

4The unfairness of Florida’s tax is exacerbated by a provision

of the Florida Income Tax Code that allows banks“: dollar-for-dollar

credit against their franchise tax liability for any intangible prop-

erty taxes paid under the provisions at issue in this case. Fla. Stat.

§ 220.68 (1983). (The credit was limited to 40 percent of the

bank’s franchise tax liability during the years in issue. The limit

was recently increased to 65 percent.) The upshot is that Florida

not only protects local banks against the risk of double taxation on

its intangibles, but also effectively insulates them even from single

taxation. |

11

Northwest Airlines, Inc. v. Minnesota, 322 U.S. 292, 326

(1944) (Stone, C. J., dissenting) (quoting Johnson Oil

Ref. Co. v. Oklahoma, 290 U.S. 158, 162 (1933) ).

Finally, to hold that only the actual imposition rather

than the inherent risk of double taxation warrants in-

validating a state tax “would mean that the constitu-

tionality of [one state’s] tax laws would depend on the

shifting complexities of the tax codes of 49 other States,

and that the validity of the taxes imposed on each tax-

payer would depend on the particular other States in

which it operated.” Armco, 467 U.S. at 644-45.

Florida’s claim that Ford seeks to “extend” the inter-

nal consistency test beyond its proper bounds (e. g., Br.

17, 26, 30) is actually a thinly veiled assault on the

test itself. The scope and application of the test have

been thoroughly debated in the Court's recent opinions,

and Florida's arguments are largely indistinguishable

from the views expressed by the dissenting Justices in

those cases. The state argues, for example, that applying

the internal consistency test is “contrary to the prac-

tical, realistic approach reflected in Complete Auto” (Br.

18)—a point that echoes the dissenting opinion in

Armco, 467 U.S. at 648 (Rehnquist, J., dissenting '.

Similarly, Florida questions the soundness of the inter-

nal consistency test because it would eliminate some but

not all risk of double taxation (Br. 18)—an argument

that draws upon the dissenting opinion in Tyler Pipe

483 U.S. at 258-59 (Scalia, J., dissenting), and that we

addressed in our opening brief (pp. 27-28).

Applying the internal consistency test here ires

extension of the doctrine. To —

that some Justices have expressed about previous applica-

tions of the test are not present in this case. For example,

Florida's statute, like those in Armco and Tyler Pipe, is

facially discriminatory—it overtly insulates from mul-

tiple taxation only the state’s own domiciliaries who con-

fine their activities within the state’s boundaries. The

Court therefore need not go as far as it did im American

Trucking Ase’ns v. Scheiner. 482 IId 288 (1087) where

12

it applied the internal consistency test to invalidate a flat

highway tax that concededly was “not . . . facially dis-

criminatory.” Id. at 281 (emphasis added). Compare id.

at 302-03 (O’Connor, J., dissenting) (objecting to use of

internal consistency test where tax is not facially dis-

criminatory) with Tyler Pipe, 483 U.S. at 253 O Connor,

J., concurring) (agreeing with use of internattensistency

test where tax is facially discriminatory).

Furthermore, the intangible property tax at issue here,

unlike the transactional taxes at issue in Armco and

Tyler Pipe, resembles an income tax in the sense that

property, like income, can have only a single, unitary

value. If more than one state contributes to that value

and therefore has jurisdiction to tax it, the internal con-

sistency test plays an important role in protecting the

asset from taxation on more than 100 percent of its value.

This is a far clearer case for applying an internal con-

sistency analysis than a case involving a tax on “discrete

events” where “there is simply no unitary figure or event

to apportion.” Tyler Pipe, 483 U.S. at 256 (Scalia, J.,

dissenting). See also Armco, 467 U.S. at 648 (Rehnquist,

J., dissenting).

Even Florida grudgingly acknowledges in the end that

the internal consistency test has a proper function. It

admits that, “when a state puts forward a basis of taxa-

tion, it must be internally consistent in following the

logic of that basis of taxation.” Br. 36; see also Br. 18,

29, 30. That concession is fatal to the state’s case, be-

cause Florida does not follow the logic of its statute. By

taxing the full value of all intangibles owned by its domi-

ciliaries, regardless of business situs, Florida asserts a

theory of taxing jurisdiction under which the state of

domicile alone provides the benefits and protections that

give rise to intangible values. It is utterly inconsistent

with the logic of that theory for Florida simultaneously

to tax intangibles owned by non-domiciliaries under a

“business situs” theory. If a domiciliary state may tax

intangible values in full because it alone contributes to

4

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13

the creation of those values, a business situs state may

tax those values not at all. See Japan Line, Ltd. v. County

of Los Angeles, 441 U.S. 434, 443 (1979). Alternatively,

if Florida’s theory were that both a domiciliary state and

a business situs state contribute to the value of intangible

property and therefore that both can tax them, the logic“

of its tax would require an apportionment mechanism that

its current statute lacks.

IV. THE COMMERCE CLAUSE DOES NOT PERMIT

MULTIPLE TAXATION OF INTANGIBLES THAT

ARISE OUT OF INTERSTATE COMMERCE

That brings us to Florida’s final and most extreme ar-

gument. The state flatly asserts that ‘double taxation [of

intangibles] is entirely consistent with constitutional prin-

ciples.” Br. 31. If so, under the state’s analysis, the

internal consistency test, which is designed to prevent

double taxation of interstate commerce, should have no ap-

plication to an intangible property tax.

The state’s theory is that in the case of intangibles,

which have no single identifiable situs, “domicile and

situs states afford different protections, benefits, and priv-

ileges for which each may demand a return.” Br. 31. But

it hardly follows that each may demand an unapportioned

return. As this Court stated in Mobil Oil Corp. v. Com-

missioner of Taxes, 445 U.S. 425, 446 (1980)—a case

that involved income from intangible property—when an

object of taxation “bears relation to benefits and privi-

leges conferred by several States, . apportionment is

ordinarily the accepted method.” Long before Mobil, the

Court applied the same apportionment principle to a tax

on the intangible property itself. In Adams Express Co.

v. Ohio State Auditor, 166 U.S. 185 (1897), the Court

held that intangible property may be taxed by states other

than the owner’s state of domicile. Because a number of

different states may contribute a “proportionate share of

the value of the entire property,” the owner may be sub-

ject in each state to “such burden of taxation as a fair

distribution of the actual value of their property among

thace atatac anne Td at 994A 99K (amnheacita. ln

14

Florida’s mistaken notion that intangible property may

be subjected to multiple unapportioned taxation can be

traced to three principal misconceptions. First, it mis-

reads several of this Court’s due process decisions, er-

roneously inferring that they excuse states from any

need to apportion a tax on intangible property. Br. 23.

As we discussed in our opening brief (pp. 36-38), the is-

sue in the due process cases was jurisdictional—whether

a non-domiciliary state had a sufficient connection with

intangible property to levy a tax either on the property

itself, Liverpool & L. & G. Ins. Co. v. Board of Assessors,

221 U.S. 346 (1911); Metropolitan Life Ins. Co. v. New

Orleans, 205 U.S. 395 (1907), or on its transfer at death.

State Tax Comm’n 9. Aldrich, 316 U.S. 174 (1942);

Curry v. McCanless, 307 U.S. 357 (1939) ; Blackstone v.

Miller, 188 U.S. 189 (1903). In none of these cases did

the Court consider or decide any issue of apportionment,

and in none did it address any question under the Com-

merce Clause.“

5 The state also relies (Br. 17, 30-31, 33) on several individual

income tax cases in which the Court upheld the authority of a state

either to tax in full the income of residents from both in-state and

out-of-state sources, New York ex rel. Cohn v. Graves, 300 U.S. 308

(1937); Lawrence v. State Tax Comm'n, 286 U.S. 276 (1932), or

to tax the income of non-residents from their property or business

within the state. Shaffer v. Carter, 252 U.S. 37 (1920). The focus

of each case was on territorial taxing jurisdiction under the Due

Process Clause. No question of apportionment was considered or

addressed in any of them. The only mention of the Commerce Clause

was in Shaffer, where the Court rejected a subsidiary argument

predicated on the assumption any tax on interstate commerce would

be invalid. See id. at 57.

Florida makes much of its observation (Br. 33) that the statute

in Shaffer was internally inconsistent—the state there taxed both

the income of its resident individuals from all sources and the in-

come of non-resident individuals from sources within the state. /d.

at 44-45. But the decision is of no use to Florida here. First, the

multiple burdens doctrine and the internal consistency test derive

from the Commerce Clause, and the taxpayer in Shaffer did not

raise a Commerce Clause objection to the internally inconsistent

feature of the statute. Second, the same statute today, if applied to

a multistate business enterprise, would be struck down under both *

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15

Second, the state wrongly believes that, under this

Court’s decisions, multiple taxation is permissible” when

“attributable to a state’s special power to tax on the basis

of domicile.” Br. 30. In the words of Chief Justice Stone,

however, “[w]hile the existence of a business domicile has

been thought to afford a basis for the state taxation of in-

tangibles, on the theory that they have become localized

there, .. the taxation of intangibles of interstate [com-

panies] is subject to the rule of apportionment wherever

the tax without it would subject the commerce to the bur-

den of multiple state taxation.” Northwest Airlines, Inc.

v. Minnesota, 332 U.S. at 318 (Stone, C.J., dissenting)

(emphasis added) (citing Southern Ry. v. Kentucky, 274

U.S. 76, 81 (1927); Wallace v. Hines, 253 U.S. 66, 69- |

70 (1920) ; Meyer v. Wells, Fargo & Co., 223 U.S. 298,

300 (1912); Fargo v. Hart, 193 U.S. 490, 499 (1904) ;

Adams Express Co. v. Ohio State Auditor, 166 U.S. at,

223-25).

due process and Commerce Clause principles, which prohibit a state

from taxing without apportionment income derived from sources

both inside and outside the taxing state’s borders. See, e.g., Con-

tainer Corp. v. Franchise Tax Board, 463 U.S. 159, 164 (1983);

Mobil Oil Corp. v. Commissioner of Taxes, 445 U.S. at 445-46; Com-

plete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977). Finally,

to the extent that Shaffer can be construed to have approved under

the Commerce Clause an internally inconsistent income tax, its

authority must be questioned in light of this Court’s recent internal

consistency decisions.

The Court in Northwest Airlines upheld, under a version of

the “home port” doctrine, an unapportioned Minnesota tax on the

entire fleet of airplanes used by a Minnesota domiciliary in inter-

state commerce. The rationale of the decision was substantially

eroded in Braniff Airways, Inc. v. Nebraska Bd. of Equalization,

347 U.S. 590 (1954), which held that a non-domiciliary state could

impose an apportioned tax on the value of an interstate air carrier’s

flight equipment. The “home port” doctrine, at least for moving

equipment other than oceangoing vessels, “has yielded to a rule of

fair apportionment among the States.” Japan Line, Ltd. v. County

of Los Angeles, 441 U.S. at 442. The Court has treated Chief

Justice Stone’s dissenting opinion in Northwest Airlines as an

accurate statement of current Commerce Clause doctrine. Id. at

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16

Third, Florida is under the mistaken impression that

“the Commerce Clause has never before even been applied

to an intangible property tax.” Br. 33 n.25; see also Br.

23 n.15. On the contrary, this Court long ago invalidated

under the Commerce Clause a property tax that purported

to reach intangible values not properly within the state’s

taxing jurisdiction, thereby “throw[ing] an unconstitu-

tional burden on commerce among the states.” Fargo v.

Hart, 193 U.S. at 502. And in Pullman’s Palace-Car Co.

v. Pennsylvania, 141 U.S. 18 (1891)—a case that Flor-

ida simply ignores in its brief—the Court applied an early

version of internal consistency analysis in upholding

against Commerce Clause challenge an ad valorem tax

on a company’s capital stock, an asset that includes in-

tangible values.

In sum, there is no basis in this Court’s precedents for

Florida’s assertion that intangible property should be

left open to multiple state taxation. When interstate

commerce is subject to “cumulative burdens not imposed

on local commerce“ — regardless of whether the burden

attaches to income, to discrete transactions, or to tangible

or intangible property—the effect is to “renew the bar-

riers to interstate trade which it was the object of the

commerce clause to remove.” Western Live Stock v. Bu-

reau of Revenue, 303 U.S. 250, 256 (1938). Intangible

property that arises out of interstate commerce and has

taxable connections with several states is entitled under

the Commerce Clause to the same immunity from discrim-

inatory double taxation that any other object of taxation

enjoys.

v. THIS COURT HAS APPELLATE JURISDICTION

When Congress eliminated the appellate review pro-

vision of 28 U.S.C. § 1257(2) (1982), it provided that the

amendment “shall not affect the right to review or the

manner of reviewing the judgment or decree of a court

which was entered before [the amendment’s] effective

date.” Pub. L. No. 100-352, § 7, 102 Stat. 664 (1988).

Under the terms of that savings clause, this Court has

17

appellate jurisdiction if the “judgment or decree” under |

review was “entered” before September 25, 1988. Because

the judgment under review in this case was entered by the

ode District Court of Appeal on September 13, 1988,

is Court’s jurisdiction over the appeal was not affected

by the 1988 amendment.

At the jurisdictional stage, the state argued that the

judgment of the Florida District Court of Appeal was not

“entered” for purposes of the savings clause until after

rehearing was denied by that court. Motion to Dismiss or

Affirm at 10-12. In its brief on the merits, the state ex-

pressly abandons that argument (Br. 3 n.1) and substi-

tutes a new one. Florida now asserts that the “judgment

or decree” under review, for purposes of the savings

clause, is not the District Court of Appeal’s judgment of

September 13, 1988, but rather the Florida Supreme

Court’s denial of discretionary review Feb

1989. Br. 4-5." si ai a

Florida correctly acknowledges that “the state court

judgment [] or decree[]’ that is ‘reviewed’ under Section

1257 in circumstances like the present is the final state

court decision on the merits, even if rendered by an in-

termediate appellate court, and not the denial of discre-

tionary review by the state supreme court.” Br. 3. See,

e.. Michigan-Wisconsin Pipe Line Co. v. Calvert, 347

U.S. 157, 159-60 (1954); American Ry. Express Co. v.

Levee, 263 U.S. 19, 20-21 (1923). The state accordingly

concedes that, if the phrase “judgment or decree” as used

_. ‘Both arguments flatly contradict the state’s prior assertion

in the Florida Supreme Court that the case falls within this Court’s

mandatory appellate jurisdiction. The state opposed Ford’s petition

for discretionary review in the Florida Supreme Court on the

ground that the constitutional issue should be left for resolution

by this Court. Central to the state’s argument was its unqualified

declaration that Ford “will be free to file a direct appeal (not a

petition for certiorari)” and that “[t]his appeal will consist of a

review on the merits regardless of whether the U.S. Supreme Court

grants oral argument.” Brief of Respondent on Jurisdiction at

. Th (Nov. 28, 1988). The state was right then and is wrong now.

18

in the savings clause “were to borrow its meaning” from

28 U.S.C. § 1257, “the appeal here would be proper.” Br.

3. The state argues, however, that the savings clause

should be understood to “borrow its meaning“ instead

from 28 U.S.C. § 2101 (e). Under its theory, because the

time for taking an appeal “does not begin to run in cir-

cumstances like the present until the denial of discretion-

ary review by the state supreme court,” that denial,

rather than the intermediate appellate court’s final deci-

sion on the merits, constitutes the “judgment or decree”

for purposes of section 2101 (e) and, derivatively, for pur-

poses of the savings clause as well. Br. 3-5.

The argument is unsound. First, when Congress uses

a phrase in an amending statute that is identical to a

phrase in the amended statute, one may reasonably infer

that it intended the two phrases to have the same mean-

ing. 1A Sutherland Statutory Construction § 22.33, at

288 (4th ed. 1985); see Pierce v. Underwood, 487 U.S.

552, 567-68 (1988); Blair v. Chicago, 201 U.S. 400, 454-

55 (1906). The legislation that eliminated this Court’s

appellate jurisdiction amended section 1257, not section

2101(c). The terms of the savings clause confirm that

Congress meant to refer to the former rather than the

latter. It preserves the “right to review” and the “man-

ner of reviewing” a judgment, subjects dealt with by

section 1257. It says nothing about the time for review-

ing a judgment, the only subject dealt with by section

2101(c). There is no reason to suppose that Congress

meant to refer in the sayings clause to a “judgment or

decree” different from the “judgment or decree” that

would have been appealable under former section 1257.

Second, the state misapprehends this Court’s decisions

under section 2101(c). The Court has not construed the

phrase “judgment or decree” as used in that section to

mean an order denying discretionary review. It has held

:

19

only that, for obvious pragmatic reasons, the time for

taking an appeal or filing a petition for a writ of cer-

tiorari is “tolled” or “suspended” while a petition for

discretionary review, or a petition for rehearing, is

pending. E. g., Communist Party v. Whitcomb, 414 U.S.

441, 445 (1974); Department of Banking v. Pink, 317

U.S. 264, 266 (1942); American Ry. Express Co. v.

Levee, 268 U.S. at 21. This Court’s Rule 13.1 codifies

that principle. It provides that a petition for a writ of

certiorari seeking review of a judgment of a lower state

court “shall be deemed in time” if filed within 90 days

after entry of an order denying discretionary review. A

“tolling” or “deeming” rule does not amount to a deter-

mination that the phrase “judgment or decree” refers to

the state supreme court’s order denying discretionary

review rather than the intermediate court’s judgment on

the merits.

Congress could have drawn a different line. It might

have preserved only those appeals actually docketed be-

fore the new legislation’s effective date. It might even

have adopted Florida’s more obscure approach and saved

only those appeals in which a “still-partly-inchoate right

of eventual review” had “fully ripened” by the effective

date. Br. 4. But it chose instead a bright-line test that

focuses solely on the date of the judgment to be reviewed

by this Court. If that judgment was entered before the

amendment’s effective date, as it was in this case, this

Court has jurisdiction over the appeal.

Even if the Court were to conclude that appeal does not lie

under section 1257, it would be free to decide the merits under its

certiorari jurisdiction. Given the importance of the Commerce

Clause issue, the tension between the decision below and this Court's

precedents, the state’s belated objection to appellate jurisdiction

(after it successfully urged the contrary position below), and the

fact that the case has now been fully briefed, it is plainly appro-

priate for the Court to proceed with plenary review. Cf. City of

Canton v. Harris, 109 S. Ct. 1197, 1202-08 (1989); St. Louis v.

Prapotnik, 485 U.S. 112, 120-21 (1988) ; Oklahoma City v. Tuttle,

471 U.S. 808, 815-16 (1985).

CONCLUSION

should be reversed.

Of Counsel:

FRANK A. STOCKING

JOHN P. VAN DUSEN

JOHN M. NEBERLE

Ford Motor Company

The American Road

Dearborn, Michigan 48121

(313) 323-0537

OCTOBER 1990

The judgment of the Florida District Court of Appeal

Respect“ lly submitted,

JAMES E. TRIBBLE

BLACKWELL & WALKER, P.A.

2400 AmeriFirst Building

One Southeast Third Avenue

Miami, Florida 33131

(305) 358-8880

MARK L. EVANS

Counsel of Record

ALAN I. HoRoWITZ

PATRICIA M. LACEY

ANTHONY F. SHELLEY

MILLER & CHEVALIER, Chartered

Metropolitan Square

655 Fifteenth Street, N.W.

Washington, D.C. 20005

(202) 626-5800

Counsel for Appellant