Amicus Curiae Brief — DH Holmes Co. v. McNamara

Supreme Court, U3, |

FILED

JEC 24 1987

No. 87-267 r JOSEPH EF. SPANIOL, JR,

CLERK

IN THE

Supreme Court of the United States

Octoser TERM, 1987

D.H. HOLMES CO., LTD.,

Appellant,

VS.

SHIRLEY McNAMARA, SECRETARY OF REVENUE

AND TAXATION, THE DEPARTMENT OF REVENUE

AND TAXATION, STATE OF LOUISIANA,

Appellee.

ON WRIT OF CERTIORARI TO THE UNITED STATES

SUPREME COURT ON APPEAL FROM THE COURT OF

APPEALS FOURTH CIRCUIT STATE OF LOUISIANA

AMICUS CURIAE BRIEF

OF THE NATIONAL ASSOCIATION

OF CATALOG SHOWROOM MERCHANDISERS

RicHArD B. KELiy*

THOMAS P. MOHEN

KELLY, ECKHAUS & MOHEN

Attorneys for the National Association

of Catalog Showroom Merchandisers

230 Park Avenue

New York, New York 10169

(212) 986-6200

* Counsel of Record

December 21, 1987

QUESTION PRESENTED

Has the State of Louisiana met the burden to justify over-

turning the long standing principle of non-taxation of items in

interstate commerce pursuant to Article 1, Section 8, Clause 3

of the United States Constitution when advertisements such as

catalogs are mailed from an out of state printer directly to poten-

tial customers of the taxpayer within the state, without charge.

PARTIES TO THE PROCEEDING

The appellant is D.H. Holmes Co., Ltd., and the appellee is

Shirley McNamara, Secretary of Revenue and Taxation, the

Department of Revenue and Taxation, State of Louisiana.

Rule 28.1 Listing

Amicus, the National Association of Catalog Showroom Mer-

chandisers states that it is a national trade association of dis-

count retailers, known as catalog showrooms that has no parent

companies, subsidiaries or affiliates to list pursuant to Rule 28.1.

TABLE OF CONTENTS

QUESTION PRESENTED ............------..

PARTIES TO THE PROCEEDING ............

TABLE OF CONTENTS... .....-..ccececceee,

TABLE OF AUTHORITIES .................-.

INTEREST OF THE AMICUS CURIAE ........

STATEMENT OF THE CASE ..............

SUMMARY OF ARGUMENT................---

eG a cae eg uscecscevececess

I. This “use tax” case is an inappropriate one

to extend permissible limits for a state

aca eis pes cccc ces.

Il. The Louisiana Department of Revenue &

Taxation does not have the power to tax

CE ee eee

III. The State of Louisiana has not met its

burden to justify overturning the long

standing constitutional principle of non-

taxation of items in interstate commerce

pursuant to Article 1, Section 8, Clause 3

of the United States Constitution ........

PI dnb cee wie ccccensceccssees.

Page

ul

TABLE OF AUTHORITIES

Cases

American Oil Co. v. Neil, 360 U.S. 451 (1959)...

Bennett Bros., Inc. v. N.Y.S. Tax Commission,

405 N.Y.S. 2d 803 (N.Y. Ct. of Appeals 1978) .

Burger King v. N.Y.S. Tax Comm., 70 A.D. 2d

NS hg a ha nns ca a aS ER ewe 6s

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

SNR RM te Sor AER. Ae) Cy A Oe

Chicago/Milwaukee & St. Paul R.R. v.

Minnesota, 134 U.S. 418 (1889) ..............

District ef Columbia v. W. Bell & Co. Inc., 420

A.D. 2d 1208 (D.C. App. 1980)..............

Farmers Union Coop v. Kansas Siate Corp.

Comm., 302 F. Supp 778 (D.C. Kan. 1969) ...

Gould v. Gould, 245 U.S. 151 (1917) ...........

Grace v. N.Y.S. Tax Comm., 37 N.Y. 2d 193

NS cet ase re Anas Le aie eain.

Hughes Bros. Timber Co. v. Minn., 272 U.S. 469

Re en eS eke A eclag ce tae VI OTs

Independent Warehouses, Inc. v. Scheele, 331

fe |. Seer Pe hy to ae ee

Mart Realty, Inc. v. Norberg, 111 R.1f. 402 (1973)

Michelin Tire Corp. v. Wages, 423 U.S. 276

eR ke EOP EE ERS NEI arco Pee ne

Page

eh |

~]

~l

National Bellas Hess v. Dept. of Rev., 386 U.S.

GREE SE PR er ey eee npr CP

Scripto v. Carson, 105 So. 2d 775 (Fla. 1958);

ee Se ee as

Sears Roebuck Co. v. Mass. State Tax Comm..

— Be ee FS ere

Service Merchandise Co., Inc. v. Tidwell, 3529

SMF 8 ER ee

Yick Wo v. Hopkins, 118 U.S. 356 (1886) .......

Constitutional Provisions:

Article 1 Section 8, Clause 3 of the United States

re ERIE AS nal DR RAR ca 9 rsd

Statutes:

La. Rev. Stat Section 47:305 (5)................

Other Authorities:

American Jurisprudence, 51:308................

Cooley, Taxation, 4th Ed, 2:503 ...............

Corpus Juris Secundum, Statutes Section, 82: 390

passim

No. 87-267

IN THE

Supreme Court of the United States

OctToBerR TERM, 1987

D.H. HOLMES CO., LTD.,

Appellant,

vs.

SHIRLEY McNAMARA, SECRETARY OF REVENUE

AND TAXATION, THE DEPARTMENT OF REVENUE

AND TAXATION, STATE OF LOUISIANA,

Appellee.

ON WRIT OF CERTIORARI TO THE UNITED STATES

SUPREME COURT ON APPEAL FROM THE COURT OF

APPEALS FOURTH CIRCUIT STATE OF LOUISIANA

AMICUS CURIAE BRIEF

OF THE NATIONAL ASSOCIATION

OF CATALOG SHOWROOM MERCHANDISERS

INTEREST OF THE NATIONAL ASSOCIATION OF

CATALOG SHOWROOM MERCHANDISERS AS

AMICUS CURIAE IN SUPPORT OF APPELLANTS

The National Association of Catalog Showroom Merchan-

disers (“NACSM”), incorporated under the laws of the State of

New York in 1972, is a trade association representing a segment

of discount retailing encompassing approximately 2,000 retail

stores which do approximately $8 to $10 billion in annual sales.

All NACSM members use an annual national or regional catalog

as a primary advertising medium.

STATEMENT OF THE CASE

This is a case of a New York printer mailing catalogs to poten-

tial customers of a New Orleans retailer in that state; it is a

method of doing business similar to that of NACSM members.

This case presents a substantial question never before direct-

ly addressed by this Court which will have a serious impact upon

NACSM members. Catalog showrooms use the mails to send free

catalogs into the different states and. upon information and

belief, many state taxing authorities await the decision of this

Court to ascertain the limits of their authority to tax catalogs,

tivers, and other advertisements that are in interstate commerce.

In a number of cases at the state level NACSM members have

successfully defended against claims of a use tax on catalogs still

in interstate commerce.

Amicus curiae supports appellant in urging that the protec-

tion of goods, or catalogs, in interstate commerce from taxa-

tion by a state is the essence of the commerce clause of our

constitution.

SUMMARY OF ARGUMENT

It has become widely recognized that the United States and

all free economies depend upon the efficient allocation of

resources both in the development, manufacture and produc-

tion of products, as well as in the distribution of those products.

Every isolated attempt to restrain or burden one segment of

a community runs the risk of upsetting how this process works.

Taxation authorities, denied the experience, accountability and

fact finding processes of the legislature and judicial branch, are

least equipped to balance the economic and political conse-

quences, as well as the statutory and constitutional mandates

in making the determination of when a use tax should be im-

posed upon an advertising medium. Nevertheless, the Louisiana

courts have countenanced such a process.

ARGUMENT

I. THIS “USE TAX” CASE IS AN INAPPROPRIATE

ONE TO EXTEND PERMISSIBLE LIMITS FOR A

STATE SALES TAX.

This attempt by the State of Louisiana to impose a tax on

items still in the free flow of interstate commerce is a particularly

inappropriate one. See McLeod v. Dilworth Co., 322 U.S. 327

(1943); see also Miller Bros. v. Maryland, 347 U.S. 34 (1954)

which held that the mailing of a catalog could not possibly im-

pose a use tax. This brief argues that the state courts consistently

erred in finding that the taxing authorities could collect a use

tax under Louisiana R.S. 47:305(5).

The instant proceeding is the result of an administrative agen-

cy decision to charge a company a tax on catalogs mailed from

out of state to members of the consuming public within the State

of Louisiana.

All of these state citizens will not become customers of D.H.

Holmes Co., Ltd., a retail chain of department stores (“ap-

pellant”). Even those members of the public who elect to pur-

chase from appellant may or may not do so as a result of the

catalog, and any and all such subsequent sales are subject to

a state sales tax. Thus, to the extent that there is any taxable

exchange with the State of Louisiana, the state seeks to impose

two taxes.

In a somewhat analagous case, a Florida court was asked to

uphold a use tax on the stand in which pens were sold, as well

as a sales tax on the pens themselves. The Court declined to do

so. Scripto, Inc. ». Carson 105 So. 2d 775 (Fla. 1958), 362 U.S.

207; see also Sears Roebuck & Co. v. Massachusetts State Tax

Commission, 345 N.E. 893 (Massachusetts 1976). See also Burger

King v. N.Y.S. Tax Commission, 70 A.D. 2d 447 (1980) for the

proposition that the taxing agency cannot impose a use tax on

plastic cups when it also charges a sales tax on the ultimate sale

of the beverage.

Furthermore, it seems contradictory to the long term best in-

terests of the state to discourage the use of interstate advertis-

ing, and it creates serious constitutional problems when clear

limits are not set. For if Louisiana can tax catalogs still within

the control of the United States Postal Service, why can’t the

state taxing agency impose a tax upon advertising on television

air waves transmitted from Atlanta, perhaps allocating the tax

by utilizing the percentage the viewing public in the state bears

to the total audience. If so, is a tax payable by a Radio Havana

or any other communication that stimulates the senses of Loui-

sianians? This cannot be considered a rhetorical question in the

current economic environment when many taxing authorities

are displaying a thirst for additional revenues from any source.

The argument is comparable to taxing one type of publica-

tion, but not another, which raises separate issues of unlawful

discrimination between classes of merchants, by application of

the law, if not by statute. See Yick Wo v. Hopkins, 18 U.S. 356

(1886).

II. THE LOUISIANA DEPARTMENT OF REVENUE

& TAXATION DOES NOT HAVE THE POWER TO

TAX THESE CATALOGS.

Because of financial pressures on state government executives,

the case before this Court is a timely and important one which

will be widely considered when the appropriate means to raise

state revenues are considered. The need to reverse is compelling

since it is not the state legir'ature which has sought to expand

and test the constitutional limits of the state’s right to tax. As

this Court has long noted “. . . If our legislators become too

arbitrary in their exercises of their powers, the people always

have a remedy in their hands. ... . ” See Chicago, Milwaukee

& St. Paul RR v. Minnesota, 134 U.S. 418 (1889).

The taxing agency is subject to no such public accountabili-

ty and it is to the courts appellant must look to remedy an abuse

of power. It is most certainly an issue on substance over form,

with the operating circumstances governing. See American Oil

Co. v. Neill, 360 U.S. 451 (1959).

However, the absurdity of removing all limits on a state's tax-

ing power is not the only reason to reverse the decision of the

State of Louisiana Fourth Circuit Court of Appeals. There is

long standing and strong lega! precedent to overturn the deci-

sion of the Court below.

III. THE STATE OF LOUISIANA HAS ~~ .’ METITS

BURDEN TO JUSTIFY OVERTURNING THE LONG

STANDING CONSTITUTIONAL PRINCIPLE OF

NON-TAXATION OF ITEMS IN INTERSTATE COM-

MERCE PURSUANT TO ARTICLE 1, SECTION 8,

CLAUSE 3 OF THE UNITED STATES CONSTI-

TUTION.

The State of Louisiana did not even offer any sufficient reason

at the lower judicial levels to justify reversing clear and con-

flicting precedent.

The long established rule is that items moving in interstate

commerce may not be taxed before they come to rest. Indepen-

dent Warehouses, Inc. v. Scheele, 331 U.S. 70 (1977); see Michelin

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

This is not a case of insufficient retailer contact with the state

to justify imposition of a sales tax as in National Bella < Hess

v. Dept. of Revenue 386 U.S. 753, (1968) but rather one of in-

sufficient contact of the “goods”, that is advertisements, still in

interstate commerce.

The very issue of imposing a use tax on catalogs sent by a regi-

onal or national retail chain by mail to potential customers within

the state asserting the right to tax has been considered by a

number of states. We are aware of no case, before the decision

of the Louisiana Court in the case at bar, that upheld the tax.

The first of these state court cases involving a NACSM member

was decided by the highest court of Tennessee. In that case

Service Merchandise Co., Inc. v. Tidwell, 529 SW. 2d 215 (Tenn.

1975) the Tennessee Supreme Court found that catalogs ship-

ped by common carrier from a printer in the north central states

to a local post office for mailing to consumers in the state did

not come to sufficient rest and control of plaintiff to be deemed

a taxable event.

In the District of Columbia v. W. Bell ¢ Co., Inc. 420 A.D.

2d 1208 (D.C. App. 1980) the Court once again upheid the non-

taxability of catalogs shipped from a Georgia printer to con-

sumers in the district.

In both the Service Merchandise and W. Bell & Co. cases the

catalog showroom company had stores within the taxing jurisdic-

tion. The W. Bell & Co., Inc. case supra is also instructive in

that the Court determined that the word “use” does not encom-

pass such circumstances as mailing them from out of state to

residents within the state, rejecting the concept of any “promo-

tional” effect. The court said it found the Bennett Brothers deci-

sion, discussed infra, to be persuasive.

In Bennett Brothers, Inc. v. N.Y.S. Tax Commission, 405 N.Y.S.

2d 803 (N.Y. Ct. of Appeals 1978), New York’s highest court of

appeals not only found that there was no authority to charge

a use tax on catalogs mailed from out of state to consumers

within the state, but taxed the state “costs” to express its

displeasure of the taxing agency to even attempt to charge the

merchant. In this case as in the Service Merchandise and W. Bell

cases, the retailer had stores in the state that the taxing authority

sought to impose the use tax. The Court once again focused upon

a lack of any real control over the property within the state when

it is still in the flow of interstate commerce.

The Court noted that the state imposed a use tax based upon

the erroneous conclusion by the taxing authority that the mer-

chant exercised a right of control over the destination of the

catalogs. The Court held that the prior case of Matter of Ford

Motor Company concluded that distribution of advertising

material to Ford distributors in the state did not constitute a

taxable event, and that there was no distinction at law between

the cases. The Court further noted that the claim that no tax

was due was bolstered by the fact that it is not an exemption

that is claimed, but rather the contention that the catalogs in

issue are not even covered by the taxation statute, citing Grace

v. N.Y.S. Tax Commission, 37 N.Y. 2d 193 (1975).

The mere power of the owner to divert the shipment already

started does not take it out of interstate commerce. Hughes Bros.

Timber Co. v. Minnesota, 1272 U.S. 469 (1926); see also Farmers

Union Corp. v. Kansas State Corp. Comm., 302 F. Supp 77

(D.C. Kan. 1969).

The appellant released control of the catalogs when it released

them to the U.S. mails. As innumerable courts have noted the

“gift,” if that is to be the nomenclature, took place outside of

Louisiana. The appellant did not control the use and enjoyment

within the state. The present case cannot be compared with

Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977) in

that Complete Auto rests upon a tax for doing business within

the state, a condition appellant fully complies with, having retail

stores within the state and paying sales tax on all transactions

within the state.

It is a well established principle of statutory construction that

taxing statutes should be more strongly construed against the

taxing authority Gould v. Gould, 245 U.S. 151 (1917); 51 Am

Jur, Taxation, Section 308, 82; C.J.S., Statutes Section 390; 2

Cooley Taxation, 4th Ed. Sec 503. Thus any ambiguity in the

scope of the statute must be construed against the imposition

of any tax. Furthermore, no tax can be imposed under the United

States Constitution.

Courts have recognized that it is inappropriate to extend a

sales/use tax to such advertising as newspaper supplements in

cases such as Sears Roebuck & Co. v. Mass. State Tax Commis-

sion, supra, spurning such “fine spun” distinctions as the state

taxing authority would have this court accept. See for example

Mart Realty, Inc. v. Norberg, 111 R.1. 402 (1973) wherein the

court held that the mailing of advertising circulars into the state

relegated any potential “use” to that of the potential customer.

CONCLUSION

Implicit in this reasoning is the recognition that it is the con-

sumer whu receives the catalog. The consumer did not make

any payment to warrant 2 sales tax, and ordinarily does not con-

sent to its receipt to warrant a use tax. The taxing agency then

refusing to acknowledge that there has not been a taxable event,

ignores the interstate commerce issue and in this case even ig-

nores that there has not been any legislative mandate to so

burden commerce. The tax administrator merely decides to take

the money and let the courts decide the issue. NACSM respect-

fully suggests that this decision is clearer than most. A use tax

should not and cannot be imposed upon catalogs in such cir-

cumstances without violating the United States Constitution,

Article 1, Section 8, Clause 3.

The National Association of Catalog Showroom Merchan-

disers respectfully requests that the Court reverse Court of Ap-

peals of the Fourth Circuit of the State of Louisiana, in the public

interest.

Respectfully submitted,

RICHARD B. KELLyY*

THOMAS P. MOHEN

KEeLLy, ECKHAUS & MOHEN

230 Park Avenue

New York, New York 10169

(212) 986-6200

Attorneys for National Association of

Catalog Showroom Merchandisers

* Counsel of Record

December 21, 1987