Amicus Curiae Brief — Associated Industries of Mo. v. Lohman

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ASSOCIATED INDUSTRIES OF MISSOURI and

ALUMAX FOI, INC.,

é Petitioners.

JANETTE M. LOHMAN, Director of Revenue, and

DELONG’s, INCORPORATED, THE CITY OF BLUE SPRINGS,

GARY MARKENSON, THE MISSOURI ASSOCIATION OF

COUNTIES, THE MIssouRI MUNICIPAL LEAGUE, and THE

ASSOCIATED GENERAL CONTRACTORS OF MISSOURI,

Respondents.

On Writ of Certiorari to the

Supreme Court of Missouri

BRIEF OF THE NATIONAL CONFERENCE OF

STATE LEGISLATURES, NATIONAL LEAGUE OF

CITIES, NATIONAL GOVERNORS’ ASSOCIATION,

NATIONAL ASSOCIATION OF COUNTIES, COUNCIL

OF STATE GOVERNMENTS, NATIONAL INSTITUTE

OF MUNICIPAL LAW OFFICERS, INTERNATIONAL

CITY/COUNTY MANAGEMENT ASSOCIATION,

AND U.S. CONFERENCE OF MAYORS

AS AMICI CURIAE IN SUPPORT OF RESPONDENTS

RICHARD RUDA * ~

Chief Counsel

LEE FENNELL

STATE AND LOCAL LEGAL CENTER

444 North Capitol Street, N.W.

Suite 345

Washington, D.C. 20001

(202) 434-4850

* Counsel of Record for the

Amici Curiae

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QUESTIONS PRESENTED

Amici will address the following questions:

1. Whether a party which has not alleged any injury

resulting from discrepancies between applicable sales and

use tax rates within individual taxing jurisdictions has

standing to challenge a state tax statute on the ground

that those discrepancies violate the Commerce Clause.

2. Whether a statewide use tax which is designed to

compensate for varying sales tax rates imposed by local

governments throughout the State and which is set at a

level well below the average local sales tax rate applied

to in-state sales, but which exceeds the lowest local sales

tax rate available in the State, discriminates against in-

terstate commerce.

(i)

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED ...............22...22.-.-:ccccceecceeeeee i

TABLE OF AUTHORITIES ...... a v

INTEREST OF THE AMICI CURIAE |... 1

a ceciecenetencecenncsenssensccccecooces , 3

SUMMARY OF ARGUMENT .......00.. 4

EE 8

I. PETITIONERS DO NOT HAVE STANDING

TO RAISE THIS CHALLENGE TO THE

CONSTITUTIONALITY OF THE MISSOURI

USE TAX BECAUSE THEY HAVE AL-

LEGED NO INJURY RESULTING FROM

THE ASSERTED DISCRIMINATION IN

TAX TREATMENT .....0.. Tei ininitdiiesassenes i. 8

A. Petitioners’ Constitutional Challenge Is

Narrowly And Exclusively Focused On Dis-

crepancies Between The Sales And Use Tax

Rates Within Individual vente Jurisdic-

B. Petitioners Do Not Have Standing Because

They Have Not Alleged Any Cognizable In-

jury Resulting From The Assertedly Uncon-

stitutional Discrepancies Between Sales and

Use Taxes Within Individual Jurisdictions... 10

Il. MISSOURI'S COMPENSATORY USE TAX

DOES NOT DISCRIMINATE AGAINST IN-

TERSTATE COMMERCE ......... OS. aoe 15

A. Discrimination Under The Commerce Clause

Turns On The Practical Effect Of The Statu-

tory Scheme On Interstate Commerce As A

Whole, Not On Its Possible Impact On In-

dividual Transactions 15

(iii)

iv Vv

TABLE OF CONTENTS—Continued TABLE OF AUTHORITIES

Page Cases Page

B. The Court Has Permitted Some Imprecision Allen v. Wright, 468 U.S. 737 (1984) 00000. 9

In Tax Burdens Where Necessary To Ad- American Modulars Corp. v. Lindley, 376 N.E.2d

vance Important State Interests .................... 24 575 (Ohio), cert. denied, 439 U.S. 911 (1978)... 28

1. States Have An Important Interest In “—aan Ass'n v. Scheiner, 483 U.S. o7

mag ley nny + agate Arkansas Electric Coop. v. Arkansas Pub. Serv.

saci ak atin Comm’n, 461 U.S. 875 (1988) .............................. 15, 28

2. Absolute Precision As To Every Trans- Armco, Inc. v. Hardesty, 467 U.S. 638 (1984) _...... 22

action Is Not Constitutionally Required Austin v. New Hampshire, 420 U.S. 656 (1975)... 19-20

Where There Is No Overall Burden on Bacchus Imports, Ltd. v. Dias, 468 U.S. 263

Interstate Commerce 20.0.0... ..ccccc ce ceeeeeceeeee 26 RSE eS GA ee 12,17

Boston Stock Exchange v. State Tax Comm’n, 429

EE ETETE REEL AES SIN ol 2S ESET tes BAC ENE 30 Os ck 22

Dennis v. Higgins, 498 U.S. 439 (1991) 00000. 20

Department of Revenue v. ACF Indus., Inc., 62

U.S.L.W. 4097 (U.S. Jan. 24, 1994)... 2, 7,24

Doremus v. Board of Education, 342 U.S. 429

ETRE C0 a Se ETN RR ae ee Ce 8

Dunbar-Stanley Studios, Inc. v. Alabama, 393 US.

537 (1969) iii ie ere eae 6, 11, 20

Exxon Corp. v. Governor of Maryland, 437 U.S.

REE Se Ree ere 7, 23-24

General American Tank Car Corp. v. Day, 270

EE ee ee 6, 19, 24, 27

Gregg Dyeing Co. v. Query, 286 U.S. 472 (1932)... 15, 16

Halliburton Oil Well Cementing Co. v. Reily, 373

a am ee ns ie 16

Hampton v. St. Louis, 207 U.S. 456 (1918) ............. 15

Henneford v. Silas Mason Co., 300 U.S. 577

ELISE eens oesewenoes fe NSA See AN ee 16, 22

Hicklin v. Orbeck, 437 U.S. 518 (1978) .. . 19

Illinois Cent. R.R. Co. v. Minnesota, 309 US. ‘157

ECS Sere EB BS Lit a! Sh ll TO, se STD 27-28

Kraft General Foods, Inc. v. lowa Dept. of Reve-

nue, 112 S.Ct. 2365 (1992) . 18

Lewis v. BT Investment Managers, Ine., be “447 U. s.

27 (1980) ......... mabenibennieiaiiiiondiameaianieldticess ithe da steasadaialaial 16

Lujan v. Defenders of Wildlife, 112 S.Ct. 2130

SN Se LPASEN SS. ....5, 9, 12

TABLE OF AUTHORITIES—Continued

Maine v. Taylor, 477 U.S. 181 (1986) 0000. 29

Maryland v. Louisiana, 451 U.S. 725 (1981) _....... 17

Metropolitan Life Insurance Co. v. Ward, 470 U.S.

869 (1985) ielbendat 21

Minnesota v. Clover Leaf Creamery, 449 U. S. ‘456

ES See eee ee ee 23

New Energy Co. v. Limbach, 486 U.S. 269 (1988) .. 29

N.W. States Portland Cement Co. v. Minnesota,

I I I ceca lin 6, 25

San Antonio Independent School District v. Rodri-

OI Te I Oe i ilar 24, 27

Shaffer v. Carter, 252 U.S. 37 (1920) 12

Simon v. Eastern Ky. Welfare Rights Org., 426

IEEE Ee eee ee eee eer 12, 15

Supreme Court of N.H. v. Piper, 470 U.S. 274

EEE EE a RE et La 19

Tradesmens National Bank v. Oklahoma Taz

Comm’n, 309 U.S. 560 (1940) ......0 el. 23

Travellers’ Insurance Co. v. Connecticut, 185 U.S.

a eer ee passim

Tyler Pipe Indus., Ine. v. Washington State Dep’t

of Revenue, 483 U.S. 232 (1987) 0.00. 4, 6,12

Village of Arlington Heights v. Metropolitan

Hous. Dev. Corp., 429 U.S. 252 (1977) .......... 8

Wardair Canada v. Florida Dep’t of Revenue, ATT

U.S. 1 (1986) ....... tilled talline ae 21

Washington v. United States, 460 U.S. 536

SADE ETS ED, Lee Se eee a Ce 17

Western Live Stock v. Bureau of Revenue, 308

EF ET CEE BPE See ere Se RC 25, 26

Wyoming v. Oklahoma, 112 S.Ct. 789 (1992) 29

Constitutional Provisions and Statutes

United States Constitution

I TTT 19

Missouri Revised Statutes

EST TSE LIST a EIN 3

vii

TABLE OF AUTHORITIES—Continued

Other Authorities Page

American Bar Association Section of Taxation,

ABA Sales & Use Tax Desk Book: 1992-93

Edition (D. Michael Young & John T. Piper,

I ae eh Ce rd 2, 10, 26

Advisory Commission on Intergovernmental Rela-

tions, Significant Features of Fiscal Federal-

I a 2

Gerald Gunther, Constitutional Law (12th ed.

EAI RS eh ee Re Nal ea, 19

2 eet ee ee

IN THE

Suprene Court of the United States

OCTOBER TERM, 1993

No. 93-397

ASSOCIATED INDUSTRIES OF MISSOURI and

ALUMAX FOILs, INC.,

‘ Petitioners,

JANETTE M. LOHMAN, Director of Revenue, and

DrLOonG’s, INCORPORATED, THE CITY OF BLUE SPRINGS,

GARY MARKENSON, THE MISSOURI ASSOCIATION OF

COUNTIES, THE MIssoURI MUNICIPAL LEAGUE, and THE

ASSOCIATED GENERAL CONTRACTORS OF MISSOURI,

Respondents.

On Writ of Certiorari to the

Supreme Court of Missouri

BRIEF OF THE NATIONAL CONFERENCE OF

STATE LEGISLATURES, NATIONAL LEAGUE OF

CITIES, NATIONAL GOVERNORS’ ASSOCIATION,

NATIONAL ASSOCIATION OF COUNTIES, COUNCIL

OF STATE GOVERNMENTS, NATIONAL INSTITUTE

OF MUNICIPAL LAW OFFICERS, INTERNATIONAL

CITY/COUNTY MANAGEMENT ASSOCIATION,

AND U.S. CONFERENCE OF MAYORS

AS AMICI CURIAE IN SUPPORT OF RESPONDENTS

INTEREST OF THE AMICI

Amici, organizations whose members include state,

county, and municipal governments and officials through-

out the United States, have a compelling interest in legal

issues that affect state and local governments. Because

state and local taxing authority is central to governance

and state sovereignty, see Department of Revenue v. ACF

Indus., Inc., 62 U.S.L.W. 4097, 4100 (U.S. Jan. 24,

1994), constitutional challenges to the exercise of such

authority raise issues of great importance to amici.

This case implicates the capacity of States to vest

discretionary taxing authority in cities and counties, and

the ability of those cities and counties to exercise that

authority pursuant to local democratic decisionmaking.

Local sales taxes are an increasingly important source of

revenue for cities and counties. In fiscal year 1991, local

governments in 31 States and the District of Columbia

collected general sales taxes totalling over twenty-two bil-

lion dollars; this represented the second most important

source of local tax revenue that year, with only the prop-

erty tax generating more revenue. 2 Advisory Commis-

sion on Intergovernmental Relations, Significant Features

of Fiscal Federalism: 1993 Table 59 at 114-15.

Because the imposition of some form of compensatory

local use tax is generally necessary to make local taxing

authority meaningful and viable for local governments

that elect to impose sales taxes, most States authorizing

local sales taxes also provide for some sort of local use

tax. See J.A. 35 415 (Stipulation of Facts) (“[a]s of

December 31, 1991, twenty-eight states other than Mis-

souri authorized some form of local use tax”); see gen-

erally American Bar Association Section of Taxation,

ABA Sales & Use Tax Desk Book: 1992-93 Edition (D.

Michael Young & John T. Piper, eds. 1993) (detailing

the sales and use tax schemes in each State). Because

the issues raised in this case potentially implicate all such

local sales and use tax schemes, amici submit this brief

to assist the Court in its resolution of the case.’

1 The parties have consented to the filing of this brief amicus

curiae. Letters indicating their consent have been filed with the

Clerk of the Court.

STATEMENT

Amici adopt respondents’ statements of the case and

set forth only the following facts of direct relevance to

amici’s argument.

Missouri law authorizes cities and counties to impose

local sales taxes in varying amounts, Pet. App. A-3, but

until recently there was no additional use tax to com-

pensate for the sales taxes imposed at the local level. As

a result, Missouri’s scheme taxed the in-state purchase of

an item within any local jurisdiction electing to impose a

local sales tax more heavily than the purchase of the

identical item from ar out-of-state vendor, thereby creat-

ing an unfair advantage for out-of-state sellers.

In an effort to redress this imbalance, Missouri enacted

RSMo. § 144.748, which provides for the imposition of

an additional compensatory use tax of 1.5% statewide

(“compensatory use tax”). This compensatory use tax

was designed to compensate for the local sales taxes im-

posed by the local taxing jurisdictions. However, because

not all cities and counties have chosen to impose a local

sales tax of precisely 1.5% ‘or, indeed, any local sales tax

at all), the compensatory use tax is lower than the local

sales tax in some jurisdictions and higher than the local

sales tax in others. See J.A. 66. Because the vast majority

of in-state purchases occur within jurisdictions in which

the local sales tax is greater than or equal to 1.5%, the

statutory scheme places a higher overall burden on in-state

commerce than it does on interstate commerce. See Pet.

App. A-17.

Based on the fact that the local sales tax within some

jurisdictions is lower than the 1.5% compensatory use

tax, petitioners brought this Commerce Clause challenge.

Petitioner Alumax Foils, Inc. and members of petitioner

Associated Industries of Missouri (a trade association) do

business in Missouri and are required to pay sales and

use taxes on items purchased and used within the State.

J.A. 33 94. In addition, some members of petitioner

Associated Industries are headquartered in other States,

and are required to collect and remit use taxes for items

sold across state lines to Missouri customers. /d. Neither

petitioner has asserted that it or its members have a place

of business within any local taxing jurisdiction in Mis-

souri in which the local sales tax is lower than the com-

pensatory use tax. According to stipulation, petitioner

Alumax, which is headquartered in St. Louis, has pur-

chased goods from a vendor in St. Francois County, a

county in which the local sales tax is less than 1.5%.

J.A. 33 ¢ 5S.

SUMMARY OF ARGUMENT

Missouri, like a majority of States, has made a legisla-

tive choice that is unquestionably within its sovereign

power—to afford local governments independent, discre-

tionary authority to levy local sales taxes. Prior to Mis-

souri’s enactment of the compensatory use tax at issue

here, local governments’ exercise of this sales tax au-

thority created a competitive advantage for out-of-state

vendors at the expense of local business. See Pet. App.

A-25; J.A. 95-97. By enacting the compensatory use

tax, set at a level well below the average local sales tax

imposed on sales within the State, Missouri has sought

to “erase’”’—at least partially—this “tax incentive to en-

gage-in interstate commerce.” Tyler Pipe Indus., Inc. v.

Washington State Dep't of Revenue, 483 U.S. 232, 243

(1987).

Petitioners’ constitutional challenge to Missouri's com-

pensatory local use tax is without merit for two reasons.

1. Petitioners lack standing to bring this Commerce

Clause challenge. Their action is narrowly based on the

asserted unconstitutionality of discrepancies between local

sales and use tax rates within certain of Missouri’s taxing

jurisdictions. Petitioners have not, however, alleged any

injury resulting from those discrepancies.

The injury which petitioners allege is their liability for

Missouri’s compensatory use tax. But liability for a tax

does not in itself constitute a cognizable injury, unless the

imposition of the tax violates “a legally protected interest.”

See, e.g., Lujan v. Defenders of Wildlife, 112 §. Ct. 2130,

2136 (1992) (injury to a “legally protected interest” is

part of the “irreducible constitutional minimum” of stand-

ing”). Petitioners have not alleged that they have suffered

any injury from the feature of the statute’s operation which

forms the basis for their constitutional challenge—the

fact that the compensatory local use tax exceeds the local

sales tax within certain of Missouri’s local taxing

jurisdictions.

Significantly, petitioners have elected not to broadly

challenge the power of States to enact local use taxes

which compensate for varying local sales tax rates. On

the contrary, petitioners have acknowledged the consti-

tutional validity of the sales and use tax systems of numer-

ous Other States, including those which provide for iden-

tical local sales and use taxes within each local taxing

jurisdiction. See Pet. Br. 28 & n.16. By doing so, peti-

tioners have implicitly conceded that Missouri’s compensa-

tory local use tax operates in a constitutionally unobjec-

tionable manner in all taxing jurisdictions in which the

local sales tax is equal to or greater than the 1.5% com-

pensatory local use tax.

Petitioners have never alleged that their liability for

Missouri's compensatory use tax has arisen within a juris-

diction in which the compensatory local use tax was

higher than the local sales tax, nor have they presented

any other allegations that would indicate that discrep-

ancies between sales and use taxes within those jurisdic-

tions have injured or will injure them. Although petition-

ers present a number of simplistic hypotheticals, they

have made no factual allegations that would demonstrate

cognizable injury to themselves, or that would trace that

injury to the assertedly unconstitutional discrepancies in

sales and use taxes produced by the Missouri compensa-

tory use tax statute. Petitioners do not have standing to

challenge an aspect of a statute’s operation that does not

cause them any harm simply because other, concededly

constitutional aspects of that same statute are costly for

them.

2. Even if the Court were to find that. petitioners have

standing, however, their Commerce Clause challenge can-

not succeed. The compensatory local use tax challenged

here is clearly one that accomplishes the permissible pur-

pose of “eras[ing] a tax incentive to engage in interstate

commerce,” not one that “affirmatively place[s] interstate

commerce at a disadvantage.” Sze Tyler Pipe, 483 U.S. at

243. Indeed, Missouri has selected a compensatory use

tax rate that continues to afford interstate commerce as

a whole an advantage over in-state commerce. See Pet.

App. A-17.

Petitioners’ legal argument to the contrary turns on a

faulty premise which has been soundly rejected by this

Court—that discrimination in interstate commerce can

be judged by looking at individual tax transactions in iso-

lation. See Genera! American Tank Car Corp. v. Day, 270

U.S. 367 (1926). Moreover, the fact that petitioners do

not point to a single interstate transaction in which they

were disadvantaged by the tax discrepancies they chal-

lenge makes their proposed “transaction by transaction”

test even more strikingly inappropriate as a measure of

the Missouri statute’s validity. See Dunbar-Stanley Studios,

Inc. v. Alabama, 393 U.S. 537, 542 (1969). Once peti-

tioners’ faulty vision of “discrimination” is stripped away,

it is clear that Missouri’s compensatory use tax statute

does not discriminate against interstate commerce. In-

stead, Missouri has done precisely what the Court has

expressly endorsed as constitutionally valid—make inter-

state commerce pay some measure of its “fair share.” See,

e.g., N.W. States Portland Cement Co. v. Minnesota, 358

U.S. 450, 461-62 (1959).

In arguing that a statute is always doomed if one can

imagine a single instance in which interstate commerce

is burdened more heavily than in-state commerce, peti-

tioners ignore two important doctrines that this Court has

consistently relied upon in assessing discrimination. First,

the Court assesses discrimination by looking at the prac-

tical operation of the statute as a whole, rather than by

isolating the potential effect on individual transactions

or even individual] interstate firms. See, e.g., Exxon Corp.

v. Governor of Maryland, 437 U.S. 117 (1978). Second,

the Court has recognized that some imprecision in the

setting of tax burdens is permissible where complete pre-

cision is impossible and important state interests are at

stake. See cases cited in Part II.B, infra.

Here, Missouri’s statute clearly does not, in its prac-

tical operation, discriminate against interstate commerce.

Pet. App. A-17. Moreover, the State’s interests could

hardly be more important—or more difficult to attain

without some degree of imprecision. Given the Court’s

historical deference to state legislative choices of taxa-

tion methods, see, e.g., Department of Revenue v. ACF

Indus., Inc., 62 U.S.L.W. 4097, 4100 (U.S. Jan. 24,

1994), Missouri’s compensatory use tax should be

upheld.

ARGUMENT

I. PETITIONERS DO NOT HAVE STANDING TO

RAISE THIS CHALLENGE TO THE CONSTITU-

TIONALITY OF THE MISSOURI USE TAX BE-

CAUSE THEY HAVE ALLEGED NO INJURY RE-

SULTING FROM THE ASSERTED DISCRIMINA-

TION IN TAX TREATMENT

The injury of which petitioners complain is their liabil-

ity for Missouri’s compensatory use tax, both as Missouri

purchasers of out-of-state goods, and, in the case of cer-

tain members of Associated Industries, as out-of-state

vendors who must collect and remit use taxes for sales to

Missouri customers. Pet. Br. 4-5. Without question, pe-

titioners would be advantaged financially if the local use

tax law had not been enacted. See J.A. 34 © 8 (stipula-

tion that compliance with compensatory use tax will im-

pose “significant economic costs” on petitioners). They

have not, however, made factual allegations of injury

traceable to the assertedly unconstitutional operation of

the statute, and therefore lack standing to bring this con-

stitutional challenge.“

* The fact that the Missouri Supreme Court found the petitioners

to have standing is not binding here, since the “constitutional and

prudential considerations” which comprise federal standing doc-

trine “respond to concerns that are peculiarly federal in nature.”

Village of Arlington Heights v. Metropolitan Hous. Dev. Corp.,

429 U.S. 252, 262 n.8 (1977). The Court has expressly held that,

even if a state court is willing to “render an opinion on a federal

constitutional question even under such circumstances that it can

be regarded only as advisory,” the Court’s “own jurisdiction is

cast in terms of ‘case or controversy,’ [and] we cannot accept as

the basis for review .. . any procedure which does not constitute

such.” Doremus v. Board of Education, 342 U.S. 429, 434 (1952).

A. Petitioners’ Constitutional Challenge Is Narrowly

And Exclusively Focused On Discrepancies Be-

tween The Sales And Use Tax Rates Within In-

dividual Taxing Jurisdictions

Standing doctrine requires a plaintiff to do more than

identify a costly phenomenon such as the imposition of

a tax; it requires the plaintiff to allege that injury to a

legally protected interest has resulted (or will result)

from an assertedly unconstitutional imposition of the tax.

See Lujan, 112 S. Ct. at 2136 (setting forth elements of

“irreducible constitutional minimum” of standing). In

other words, there must be an injury that is both legally

cognizable and “fairly traceable to the assertedly unlaw-

ful conduct.” Allen v. Wright, 468 U.S. 737, 752-53

(1984); Lujan, 112 S.Ct. at 2136. As a preliminary

matter, therefore, it is necessary to identify with clarity

the specific “assertedly unlawful conduct” complained of

by petitioners.

An examination of petitioners’ constitutional challenge

to Missouri's sales and use tax scheme reveals that it is

quite narrowly drawn, focusing exclusively on those tax-

ing jurisdictions in which the local sales tax is lower than

Missouri's compensatory use tax. Petitioners’ entire Com-

merce Clause argument is built around repeated refer-

ences to these jurisdictions, see, e.¢., Pet. Br. i, 10, 12,

14, 17, 26, 28, and is devoid of any indication that the

operation of Missouri's compensatory use tax is constitu-

tionally objectionable within those jurisdictions in which

the use tax is equal to or lower than the prevailing local

sales tax. See J.A. 93-94 (petitioners maintain that “the

discrimination is with respect to those areas of the state

where the local sales tax rate is less than the local use

tax rate”).

Significantly, petitioners do not question Missouri's

authority to afford local governments independent, dis-

cretionary taxing authority, nor do they contest the con-

stitutionality of compensatory local use taxes generally.

Indeed, petitioners expressly acknowledge the constitu-

tionality of local sales and use tax schemes adopted by

numerous other States, such as those in which cities and

counties are given discretion to impose matching local

sales and use taxes. See Pet. Br. 28 & n.16.

Nor is petitioner contesting the constitutionality of dif-

fering tax rates between jurisdictions. Petitioners de-

scribe state schemes which give local governments dis-

cretion to levy equivalent sales and use taxes as “within

the clearly delineated bounds outlined in cases from this

Court,” Pet. Br. 28, even though differing tax rates

among taxing jurisdictions are virtually inevitable under

such schemes. See generally American Bar Association

Section of Taxation, ABA Sales and Use Tax Desk Book:

1992-93 Edition (D. Michael Young and John T. Piper,

eds. 1993) (state-by-state survey of sales and use taxes

with tables indicating varying tax rates among local

jurisdictions ).

The asserted constitutional infirmity identified by peti-

tioners is, therefore, an extremely narrow one: Missouri's

uniform compensatory use tax results in discrepancies

between local sales and use taxes within individual tax-

ing jurisdictions. It is these intrajurisdictional discrepan-

cies, in which the local sales tax is lower than the local

use tax within the same jurisdiction, which petitioners

assert are unconstitutional. Put another way, petitioners

are arguing that Missouri’s compensatory use tax is un-

constitutional only insofar as it exceeds the local sales tax

rate in certain jurisdictions.

B. Petitioners Do Not Have Standing Because They

Have Not Alleged Any Cognizable Injury Resulting

From The Assertedly Unconstitutional Discrepan-

cies Between Sales and Use Taxes Within Individ-

ual Jurisdictions

As discussed above, petitioners’ constitutional objec-

tion clearly does not encompass a// impositions of Mis-

souri’s compensatory use tax; to the extent those imposi-

tions do not exceed the prevailing local sales tax in the

jurisdiction, they are implicitly conceded to be entirely

proper and unobjectionable. Because of the limited score

of petitioners’ constitutional challenge, their allegation

that they are required to pay Missouri's compensatory use

tax is inadequate to establish cognizable injury, and

hence their standing.

Petitioners have not alleged that they have been or ever

will be liable for the compensatory use tax within a

jurisdiction in which that tax rate exceeds the local sales

tax rate. See J.A. 7-8, 9€ 7-8; J.A. 33 © 4-5; J.A. 34

¢¢ 7-8, Pet. Br. 4-5. This is unsurprising, since use taxes

are ordinarily imposed at one’s business location, and pe-

titioners have not alleged that they or Associated Indus-

tries’ members are located in any jurisdiction in which

Missouri's compensating use tax exceeds the local sales

tax. Petitioners have not, therefore, made any allegations

indicating that Missouri's compensatory use tax scheme

has subjected any of their out-of-state purchases to a

heavier tax burden than would be placed on the local

purchase of the same goods. Nor has petitioner Asso-

ciated Industries alleged that its out-of-state members

have suffered any injuries attributable to intrajurisdic-

tional discrepancies in sales and use tax rates within Mis-

souri.” In the absence of any such allegations of disad.

vantage, there can be no basis for concluding that dis-

crimination exists. See Dunbar-Stanley Studios, 393 U.S.

at 542.

* Associated Industries has not indicated where within Missouri

its out-of-state members make sales, nor has it made any specific

allegations about the impact of Missouri's compensatory use tax

on its out-of-state members or their customers. See Resp. Br.

Lohman 5 n.10. But even if members of petitioner Associated

Industries had customers in jurisdictions where the compensatory

local use tax exceeded the local sales tax, the harm to those mem-

bers associated with possible lost sales to such customers would

likely be outweighed by the effect of the advantage the Missouri

tax scheme gives to out-of-state sales in all of the jurisdictions

in which the use tax is lower than the sales tax.

Petitioners have failed to allege any cognizable injury

that can be traced to the assertedly unconstitutional fea-

ture of the statute—the fact that it sometimes results in

a higher use tax than the local sales tax within a partic-

ular jurisdiction. Because they have not alleged that the

assertedly unconstitutional feature has injured them, they

cannot raise this challenge to the validity of the Missouri

law. Cf. Shaffer v. Carter, 252 U.S. 37, 57 (1920) (in

challenge to tax which did not permit deduction of out-

of-state losses, the Court pointed out “that there is no

showing that appellant has sustained such losses, and so

he is not entitled to raise this question” ).

Because petitioners have failed to satisfy the core con-

stitutional requirements of standing, see Lujan, 112 S.Ct.

at 2136, they have presented no case or controversy

capable of being adjudicated in this Court.‘ Instead, they

seek to challenge a statute by identifying an assertedly

unconstitutional feature, without alleging that this feature

has had any negative effect on them at all.”

4 The causation element of the standing test also requires that

the injury result from the “challenged action of the defendant,

and not... from the independent action of some third party not

before the Court.” Simon v. Eastern Ky. Wel. Rights Org., 426 U.S.

26, 41-42 (1976); see also Lujan, 112 S.Ct. at 2136. Here, the dis-

crepancies of which petitioners complain do not result solely from

the action of the respondent Director of Revenue in collecting

Missouri’s 1.5% local use tax; they arise only where that action

coincides with the independent action of a local taxing jurisdiction

in setting a local sales tax rate of less than 1.5%. However, it is

unnecessary in this case to determine whether the action of the

named defendant “caused” the discrepancies of which petitioners

complain, since petitioners have failed to show that those discrep-

ancies caused them any injury.

6 The cases cited by petitioners in support of their standing,

see Pet. Br. 17 n.9, are readily distinguishable. In both Tyler Pipe,

supra, and Bacchus Imports Ltd. v. Dias, 468 U.S. 263 (1984), the

parties bringing the action were direct victims of the very dis-

crimination they were challenging; they were forced to pay a tax

that others similarly situated were not required to pay. Here, in

contrast, petitioners have not shown that they are affected at all

Petitioners’ lack of standing to challenge intrajurisdic-

tional tax rate discrepancies becomes even clearer when

the effect on petitioners of eliminating those discrepancies

is considered. Petitioners have made no allegations that

would indicate they would be relieved of any portion of

their current use tax burden if the assertedly unconstitu-

tional elements of the use tax statute were removed (i.¢.,

if local use tax rates were adjusted so that they in no

case exceeded the local sales tax rate within a jurisdic-

tion). Instead, it appears petitioners would be no better

off if Missouri were required to make the local use tax

in each jurisdiction precisely match the local sales tax.

It is true that petitioners would be benefitted if the

declaratory and injunctive relief they seek were granted,

since the complete invalidation of Missouri's compensa-

tory use tax statute would relieve them of a tax burden

and potentially improve their competitive position. In

this sense, their “injury”—having to pay the tax—would

be “redressed.” However. there is no indication that peti-

tioners have been or ever will be affected by anything

other than concededly constitutional impositions of the

compensatory use tax (¢.g., where tax liability for the

use tax arises within a jurisdiction in which the local

sales tax rate is 1.5% or greater). Consequently, the

benefit they would receive from invalidation of the statute

would be a windfall resulting from the judicial review

process, not redress for their constitutional complaints.

The sole specific example of “injury” in the record illu-

strates this point. The parties have stipulated that peti-

tioner Alumax makes purchases from a vendor located

in St. Francois County, a county in which the local sales

by the assertedly unconstitutional discrepancies between tax rates

of which they complain. They are forced to pay the compensatory

use tax, to be sure, but they have not shown that the tax scheme

has ever operated so as require them to pay a higher tax rate than

that imposed on others similarly situated (e.g., those within the

same taxing jurisdiction who purchase goods locally, rather than

from out of state).

tax is lower than Missouri’s compensatory use tax. J.A.

33 €5. If Missouri were to enact new legislation that

made the local use tax precisely equal to the sales tax in

each and every taxing jurisdiction (a legislative scheme

which petitioners have acknowledged to be constitutional,

see Pet. Br. 28 & n.16), the local use tax in St. Francois

County would be reduced to match the local sales tax

there, but the local use tax in St. Louis (where Alumax

is headquartered) would remain at 1.5%, since the local

sales tax in St. Louis is 1.5%. There is no indication

the reduced use tax in St. Francois County would have

any effect on Alumax, since Alumax is not located there.

Instead, the St. Louis use tax rate of 1.5% would be im-

posed on Alumax’s out-of-state purchases. Alumax would

still be in a position to buy a product in St. Francois

County at a lower sales tax rate than the use tax rate

applicable to its out-of-state purchase of the same product

(i.e., the St. Louis use tax rate of 1.5% ).

Unable to demonstrate any real harm to themselves re-

sulting from intrajurisdictional differences in sales and

use tax rates, petitioners of necessity resort to the inven-

tion of hypothetical scenarios involving an imaginary

cast of characters (who, not incidentally, bear no resem-

blance to themselves). The Court is asked to invalidate

Missouri's statute because of the hypothetical plight of

the “Washington apple grower [required] to charge more

tax than his local counterpart on sales into Dunklin

County,” Pet. Br. 26, the “Kentucky merchant, shipping

washing machines into Dunklin County,” Pet. Br. 12, or

the “Illinois mail-order house which sells a computer to

a resident of Dexter or Kennett.” Pet. 10. In making

up their hypotheticals, petitioners have ignored the com-

plicating factors that would arise in any real-life situation

—such as the fact that these out-of-state vendors would

enjoy a competitive advantage vis-a-vis their local com-

petitors on sales into all of the cities and counties in

which the local sales tax is higher than 1.5%. See Resp.

Br. Lohman 12 n.16. These hypothetical scenarios merely

highlight petitioners’ inability to allege injury to them-

selves sufficient to confer standing and are a patently

insufficient basis for adjudicating the constitutionality of

Missouri’s compensatory use tax. See, e.g., Arkansas.

Electric Coop. v. Arkansas Pub. Ser. Comm'n, 461 US.

375, 395 (1983); Hampton v. St. Louis, 227 U.S. 456,

468-69 (1913).

Because the practical effects of a challenged statute are

determinative in the Commerce Clause context, the theo-

retical potential for discrimination against interstate com-

merce is plainly insufficient. In Gregg Dyeing Co. vy.

Query, 286 U.S. 472 (1932), the Court explained that

“[dJiscrimination, like interstate commerce itself, is a

practical conception. We must deal in this matter, as in

others, with substantial distinctions and real injuries.”

Id. at 481. Because petitioners have alleged no injuries

resulting from the asserted discrimination, there is no

basis for adjudicating the Commerce Clause issues they

raise. Their “unadorned speculation” about the harm

that might result in hypothetical situations is plainly “not

suffic{ient] to invoke the federal judicial power.” Simon,

426 U.S. at 44.

Il. MISSOURI’S COMPENSATORY USE TAX DOES

NOT DISCRIMINATE AGAINST INTERSTATE

COMMERCE

A. Discrimination Under The Commerce Clause Turns

On The Practical Effect Of The Statutory Scheme

On Interstate Commerce As A Whole, Not On Its

Possible Impact On Individual Transactions

Petitioners assert that Missouri's compensatory use tax

discriminates against interstate commerce. To make this

assertion, however, they must infuse the word “discrim-

ination” with a novel “transaction by transaction” mean-

ing. The starting point in analyzing whether Missouri's

statute unconstitutionally discriminates against interstate

commerce in the manner asserted by petitioners is to con-

sider the way in which the Court has defined and as-

sessed “discrimination” in this context. This examination

demonstrates that petitioners’ Commerce Clause theory

cannot be squared with this Court’s precedents.

“Discrimination, like interstate commerce itself, is a

practical conception.” Gregg Dyeing, 286 U.S. at 481.

Accordingly, the Court has repeatedly emphasized that a

State taxing statute’s validity under the Commerce Clause

must be tested by its practical operation. In Halliburton

Oil Well Cementing Co. v. Reily, 373 U.S. 64 (1963),

the Court reaffirmed its central duty where a tax is chal-

lenged under the Commerce Clause:

“In each case it is our duty to determine whether

the statute under attack, whatever its name may be,

will in its practical operation work discrimination

against interstate commerce.” This concern with the

actuality of operation, a dominant theme running

through all state taxation cases, extends to every

aspect of the tax operations.

Id. at 69 (quoting Best & Co. v. Maxwell, 311 U.S. 454.

455-56 (1940) ); see also Lewis v. BT Inv. Managers,

Inc., 447 U.S. 27, 37 (1980) (“[t}he principal focus of

inquiry must be the practical operation of the statute”).

The Court’s focus on the practical operation of chal-

lenged statutes has led it to reject Commerce Clause

challenges based on formal, rather than practical, dis-

tinctions in treatment. For example, in Gregg Dyeing

the Court held that the appellants had not sustained their

burden of showing discrimination since they “failed to

show that, whatever distinction there existed in form.

there was any substantial discrimination in fact.” 286

U.S. at 482, quoted in Henneford v. Silas Mason Co..

300 U.S. 577, 585 (1937). See also Halliburton Oil.

373 U.S. at 70 (“equality for the purposes of competi-

tion and the flow of commerce is measured in dollars and

cents, not legal abstractions” ).

ee ee

Related to the Court’s concern with practical effects is

its explicit instruction that the constitutionality of state

taxes be evaluated based on the effects of the statu-

tory scheme as a whole. “A state tax must be assessed

in light of its actual effect considered in conjunction with

other provisions of the State’s tax scheme.” Maryland v.

Louisiana, 451 U.S. 725, 756 (1981). Cf. Washington

v. United States, 460 U.S. 540, 542 (1983) (in assess-

ing whether tax statute improperly discriminated against

federal government, Court reiterated “that a determina-

tion whether a tax is discriminatory ‘requires an examina-

tion of the whole tax structure of the state’ ") (citations

omitted ).

Ignoring these fundamental precepts, petitioners have

asked the Court to adopt a novel transaction by trans-

action approach to assessing discrimination against inter-

State commerce. Their approach would require a state

tax statute to be invalidated whenever a single transac-

tion could be imagined in which a heavier tax burden

would be placed on an out-of-state sale than on an in-

State sale. Nothing in this Court's Commerce Clause pre-

cedents supports such an approach to the meaning of

proscribed “discrimination.” On the contrary, the Court

assesses discrimination against interstate commerce by

looking at the overall effect of a challenged statutory

scheme. While it is true that even a relatively small over-

~all effect may in some circumstances be sufficient for the

invalidation of a statute, see, e.g., Bacchus Imports, Ltd.

v. Dias, 468 U.S. 263 (1984), the net effect must be

adverse to interstate commerce generally.

All of the cases upon which petitioners rely are dis-

tinguishable from the Missouri statute in that the dis-

crepancies in treatment, in each and every instance in

which they occurred, all had an adverse impact on inter-

State commerce.* Because there were no countervailing

* This is not, of course, to say that each and every transaction

occurring under the challenged statutory schemes produced dis-

instances in which interstate commerce was favored, it

was not necessary for the Court to engage in any balanc-

ing or weighing to determine the overall effect of the

statute. The differences in treatment systemically and

consistently favored in-state interests over interstate com-

merce, and the overall effect was unambiguously dis-

criminatory.

Where, as here, the state scheme tends in two direc-

tions, but in net effect produces no adverse impact on

interstate commerce, the Court has indicated there is no

constitutionally cognizable discrimination. In Kraft Gen-

eral Foods v. lowa Dept. of Revenue, 112 S.Ct. 2365

(1992), the Court said, in the context of a foreign Com-

merce Clause challenge, that “[i]f [it were] true” that

“lowa’s tax system does not favor business activity in the

United States generally over business activity abroad

.. .. this would indeed suggest that the statute does not

discriminate against foreign commerce.” Id. at 2370

(emphasis added). The Court’s statement in Kraft re-

garding the necessity of judging discrimination by its

general effect is but the most recent restatement of the

Court’s longstanding approach to assessing the constitu-

tionality of tax treatment. The Court had previously ap-

plied this same principle to uphold state taxation schemes

squarely analogous to the one at issue here against allega-

tions that they unconstitutionally discriminated against

out-of-state interests.

In Travellers’ Insurance Co. v. Connecticut, 185 USS.

364 (1902), the Court affirmed the validity of a tax

scheme similar to the one at issue here in the context of

crimination—in some instances interstate commerce and in-state

commerce were treated the same. See Br. Am. Cur. Wash. Legal

Found. 9 n.4. But in each instance in which discrimination did

occur, it favored in-state interests over interstate transactions.

There was not, as here, any countervailing “discrimination in

favor of interstate commerce to weigh against discrimination tend-

ing in the opposite direction.

a ee a

ee ee Td

a Privileges and Immunities Clause challenge.” The tax

Statute at issue in Travellers imposed a uniform statewide

tax rate on nonresident stockholders, but made the vary-

ing local tax rates applicable to resident stockholders.

The Court upheld the tax scheme as nondiscriminatory,

even though the local tax rates were in some cases higher

and in some cases lower than the uniform tax rate im-

posed on nonresidents. Specifically rejecting exactly the

type of transaction by transaction analysis petitioners ad-

vocate, the Travellers Court explained that “[y]lou can-

not put one resident against one nonresident stockholder,

and by a comparison of their different burdens determine

the validity of the legislation.” Jd. at 369.

In General American Tank Car Corp. v. Day, 270 U.S.

367 (1926), the Court applied a similar overall effects

test to uphold another tax scheme squarely analogous to

Missouri’s against Commerce Clause and Equal Protec-

tion Clause challenges. There, the tax assessed on non-

residents was, taken as a whole, found to be “substan-

tially the equivalent” of the various local taxes imposed

on residents. fd. at 373. See also Austin vy. New Hamp-

shire, 420 U.S. 656, 664-65 (1975) (in the context of a

Privileges and Immunities Clause challenge, Court con-

7 Amici’s references within this brief are to the Privileges and

Immunities Clause contained in Article IV. The analysis contained

in cases involving the Article IV Privileges and Immunities Clause

can be expected to be highly instructive, if not dispositive of the

Commerce Clause question presented here, given the fact that the

two clauses have a common historical origin and the same core

purpose. The Court has repeatedly acknowledged this closely linked

history, and has used it as a basis for applying Commerce Clause

analysis to Privileges and Immunities Clause questions. See, e.g.,

Hicklin v. Orbeck, 437 U.S. 518, 531-32 (1978) (noting “the mu-

tually reinforcing relationship between the Privileges and Immuni-

ties Clause of Art. IV, § 2 and the Commerce Clause—a relationship

that stems from their common origin in the Fourth Article of the

Articles of Confederation and their shared vision of federalism’)

(footnote and citation omitted) ; Supreme Court of N.H. v. Piper,

170 U.S. 274, 279-80 & nn. 7-8 (1985) (same). See generally

Gerald Gunther, Constitutional Law 281-82 (12th ed. 1991).

trasted a statutory scheme whose burden “falls exclusively

on the income of nonresidents [and is] not offset even

approximately by other taxes imposed upon residents

alone” with the one at issue in Travellers, in which “the

nonresident . . . was called upon to make no more than his

ratable contribution to the support of the state govern-

ment”) (footnote omitted ).

Likewise, in Dunbar-Stanley Studios, the Court upheld

taxes imposed on transient, out-of-state photographers on

a city by city basis, despite the fact that those taxes could

under certain circumstances exceed the tax imposed on

photographers with a fixed location within the State.

There, the Court found it important that the petitioner

had not alleged that the system of taxation had actually

worked to its disadvantage: “In none of the cities for

which appellants’ complaint gives the details of its activi-

ties would the transient tax imposed on it have exceeded

that which a fixed-location photographer would have had

to pay to operate in the city.” 393 U.S. at 542. The same

defect is present here as well, see Part I, supra, making it

especially clear that there is no basis for using petitioners’

transaction by transaction test.

The Court’s Commerce Clause jurisprudence thus as-

sesses discrimination by examining the impact of a chal-

lenged law on interstate commerce as a whole. Of course,

the case law also recognizes that individuals may benefit,

both as consumers and as vendors, as a result of the Com-

merce Clause’s preclusion of Balkanization and economic

warfare among the States. See Dennis v. Higgins, 498

U.S. 439, 449 (1991). Because individuals are among

the beneficiaries of the system “fostered by the Commerce

Clause,” and are within the “zone of interests” protected

by that Clause, the Court has held that individuals may

bring a Commerce Clause action under Section 1983. Id.

at 449-51 (citations omitted). Such a remedy is avail-

able to individuals, however, only insofar as the chal-

lenged legislation violates the substantive constitutional

;

limits set forth by the Court; that is, where it has an ad-

verse impact on interstate commerce as a whole.

The fact that the Commerce Clause helps foster a con-

stitutional system that protects individual interests does

not, however, translate into the extreme substantive

constitutional mandate that petitioners advocate: that

any state statute which disadvantages a single individ-

ual or business, within the context of a Single trans-

action, must therefore be invalidated without further in-

quiry, regardless of whether interstate commerce is ad-

versely affected. Instead, the Commerce Clause works in

conjunction with other constitutional protections, such as

the Privileges and Immunities Clause and the Equal Pro-

tection Clause, to protect a system of incentives and ex-

pectations regarding trade which will benefit vendors and

consumers alike.*

In the context of the Commerce Clause, this protection

of individual expectations thus occurs as an incident to

the Commerce Clause’s embodiment of “the constitu-

tional principle of ensuring that the conduct of individual

States does not work to the detriment of the Nation as

a whole, and thus ultimately to all of the States.” Wardair

Canada, Inc. v. Florida Dep’t of Revenue, 477 US. 1,

8 (1986). Hence, the Commerce Clause’s substantive

protections, as set forth in this Court’s decisions, operate

to safeguard individuals’ expectations of free access to

all markets by safeguarding interstate commerce gener-

ally. This does not, however, equate to a substantive

guarantee of precise equality in treatment with regard

to each and every transaction in which an individual might

engage.

* Indeed, the Court has outlined something of a division of labor

between these various constitutional provisions. See Metropolitan

Life Insurance Co. v. Ward, 470 U.S. 869, 881 (1985) (Commerce

Clause and Equal Protection Clauses “perform different functions

in the analysis of the permissible scope of a State’s power—one

protects interstate commerce, and the other protects persons from

unconstitutional discrimination by the States.”) (footnote omitted).

Consistent with this approach, the Court has, of course,

at times referred to the impact on representative “individ-

uals” in testing the effects of a state statute. In Boston

Stock Exchange v. State Tax Comm’n, 429 U.S. 318, 332

(1977), the Court noted that “[iJn all the use tax cases,

an individual faced with the choice of an in-state or out-

of-state purchase could make the choice without regard

to the tax consequences.” Similarly, in Henneford v. Silas

Mason Co., 300 U.S. 577, 584 (1937), the Court found

a sales and use tax scheme valid since “[w]Jhen the ac-

count is made up, the stranger from afar is subject to no

greater burden than the dweller within the gates.” Such

illustrative examples are analytically useful where a stat-

ute’s effect on one sample individual can indeed stand for

the overall effect on individuals of that class generally.

But looking at a statute’s effect from the standpoint of

a given “individual” as a way of assessing a statute’s ef-

fect on interstate commerce as a whole makes little sense

where various individuals and businesses are affected in

different and opposing ways by the statute. Petitioners

cite no case, nor are amici aware of any, in which the

Court has ever suggested that this tool for analyzing dis-

crimination be used in such a context, or that it be ele-

vated to an enforceable constitutional guarantee that the

burdens placed on every imaginable in-state and out-of-

state transaction actually be equivalent for each and every

imaginable individual or business.”

* Similar reasoning applies to the Court’s statement in Armco,

Inc. v. Hardesty, 467 U.S. 638, 642 (1984), that “a State may not

tax a transaction or incident more heavily when it crosses state

lines than when it occurs entirely within the State.” This state-

ment cannot mean, as petitioners suggest, that the identification

of a single transaction occurring across state lines which carries a

heavier burden than a similar transaction within state lines leads

to automatic invalidation of the statute; instead, the natural mean-

ing of this statement, viewed in light of the Court’s other pro-

nouncements in the Commerce Clause area, is that a State may

not set up a statutory scheme that operates to tax a type of trans-

action more heavily simply by virtue of the fact that it involves

interstate commerce. Here, Missouri's burden on a type of trans-

SS a oe eR of Seng.

Petitioners insist that their transaction by transaction

approach to assessing discrimination is necessary, since

any other rule would allow one out-of-state vendor (such

as the Kentucky washing machine merchant) to be dis-

advantaged by the statute as long as that disadvantage

was made up for by the gains of another out-of-state

vendor (such as the Iowa refrigerator seller). See Pet.

Br. 12. Even if such a disadvantaged party were properly

before the Court, the Court has clearly indicated that the

Commerce Clause “protects the interstate market, not

particular interstate firms.” Minnesota v. Clover Leaf

Creamery, 449 U.S. 456, 474 (1981) (quoting Exxon

Corp. v. Governor of Maryland, 437 US. 117, 127-28

(1978)); see Arkansas Elec. Coop., 461 U.S. at 390

(part of “general trend in our modern Commerce Clause

jurisprudence” is looking at “ ‘the effect of the regulation

upon the national interest in the commerce.’ ") (em-

phasis added) (quoting Illinois Gas Co. v. Pub. Serv.

Co., 314 U.S. 498, 505 (1942)). Cf. Tradesmens Nat’!

Bank v. Oklahoma Tax Comm'n, 309 U.S. 560, 568

(1940) (in assessing whether discrimination against na-

tional banking associations was present, Court held that

“(discrimination is not shown merely because a few

individual corporations, out of a class of several thousand

which ordinarily bear the same or a heavier tax burden,

may sustain a lighter tax than that imposed on national

banking associations” ).

In Exxon, the fact that a state regulation would cause

three refiners to stop selling within the State was viewed

as irrelevant, since the statute had “no impact on the rela-

tive proportions of local and out-of-state goods sold in

Maryland and indeed, no demonstrable effect whatsoever

on the interstate flow of goods.” /d. at 126 n.16. Hence.

“[t}he fact that the burden of a state regulation falls on

action involving interstate commerce (the use of goods) is far

lighter than the burden it places on another type of transaction

occurring within state lines (the sale of goods). Pet. App. A-17.

—

some interstate companies does not, by itself, establish

a claim of discrimination against interstate commerce.”

Id. at 126. Here, as in Exxon, there is nothing in the

record that indicates any negative effect on the flow of

goods resulting from discrepancies between sales and use

taxes within Missouri jurisdictions."®

B. The Court Has Permitted Some Imprecision In Tax

Burdens Where Necessary To Advance Important

State Interests

1. States Have An Important Interest In Affording

Local Governments Authority To Set Local

Sales Tax Rates

State authority over taxation lies at the core of state

sovereignty. ACF Indus., 62 U.S.L.W. at 4100. This

authority necessarily includes state legislative choices as

to whether, and in what manner, cities, towns and counties

will be given independent taxing discretion. In General

American, the Court indicated that a state legislature's

decision to grant local taxing authority “is a matter within

the competency of the state Legislature,” and indicated

that it would not concern itself “with the particular method

adopted by Louisiana of allocating the tax between the

State and its political subdivisions.” 270 U.S. at 372

(citing Columbus Southern Ry. Co. v. Wright, 151 US.

470, 475-76 (1894) ); cf. San Antonio Independent School

District v. Rodriguez, 411 U.S. 1, 40 (1973) (in con-

text of an equal protection challenge, Court declined to

“condemn the State’s judgment in conferring on political

Subdivisions the power to tax local property to supply

revenues for local interests,” noting that to do so would

'° Of course, some change in the movement of goods across state

lines would be expected since the introduction of the compensatory

use tax was designed to correct for what was previously an unfair

advantage granted to interstate commerce (resulting from the

much heavier burden imposed on in-state sales through the various

local sales taxes).

)

be to “intrude in an area which [the Court] has tradition-

ally deferred to state legislatures”).

Despite the States’ strong interest in granting sales tax

authority to local governments (and the local govern-

ments’ interest in having such authority in order to imple-

ment locally-based democratic choices), a local sales tax is

typically not a meaningful option unless some compen-

satory local use tax can also be imposed to equalize the

burdens on in-state and out-of-state transactions. Other-

wise, a local electorate’s choice to enact a sales tax is

made only at the price of losing local business to out-of-

State vendors, to whom no local sales tax need be paid.

Thus, it is not surprising that most of the States which

have authorized local governments to levy local sales taxes

have also authorized some form of compensatory local

use tax. See J.A. 35 415 (stipulating that in 1991, 28

States other than Missouri provided for some sort of

local use tax).

These compensatory local use taxes represent nothing

more than attempts to make interstate commerce pay its

“fair share”—a goal the Court has long deemed entirely

legitimate. See, e.g., N.W. States Portland Cement Co. y.

Minnesota, 358 U.S. 450, 461-62 (1959) (“it is axio-

matic that the founders did not intend to immunize such

[interstate] commerce from carrying its fair share of the

costs of the state government in return for the benefits it

derives from within the State”); Western Live Stock y.

Bureau of Revenue, 303 U.S. 250, 254 (1938) (“It was

not the purpose of the commerce clause to relieve those

engaged in interstate commerce from their just share of

State tax burden even though it increases the cost of

doing the business.”).

The State’s interest in making interstate commerce pay

its “fair share” is, of course, no less pressing simply be-

cause the State has elected to delegate some of its taxing

authority to local governments. But, as the Court has

noted, when a state legislature chooses to do this. tax

rates in the various cities, towns and counties will neces-

sarily vary “according to the judgment of their local au-

thorities as to the amount necessary to be raised for

carrying on the municipal government” and the demo-

cratic choices of their citizens. Travellers, 185 US. at

367. This is the desired, expected, and virtually inevitable

result of granting taxing discretion to local governments.

See generally ABA Sales and Use Tax Desk Book. The

existence of these varying local tax rates complicates

States’ efforts to collect a “fair share” from interstate

commerce.

2. Absolute Precision As To Eve 4 Transaction Is

Not Constitutionally Required Where There Is

No Overall Burden on Interstate Commerce

The Court has long recognized that making interstate

commerce pay its fair share, without subjecting it to

unfair or duplicative burdens, calls for practical accom-

modations. See Western Live Stock, 303 US. at 259.

In Western Live Stock, the Court upheld a local tax which

had an incidental impact on interstate advertising, hold-

ing that the challenged tax

finds support in reason, and in the practical needs of

a taxing system which, under constitutional limita-

tions, must accommodate itself to the double demand

that interstate commerce shall pay its way, and that

at the same time it shall not be burdened with cumu-

lative exactions which are not similarly laid on local

business.

Id. at 258.

The need for such practical accommodations is height-

ened where, as here, a State has chosen to vest taxing

authority in local governments. For, as the Court has

recognized, some imprecision in burdens is inevitable

when local taxing jurisdictions adopt varying rates. As

the Court explained in Travellers, “{i]t does not seem

possible to adjust, with unerring certainty, all the varying

;

burdens which grow out of the fact that some of the stock

of the various state corporations is held outside of the

state and some within the state and the latter in separate

municipalities with different rates of taxation.” 185 U.S.

at 369-70.

In upholding the State’s tax system over the objection

that some inequalities in tax burdens would remain in

certain instances, the Travellers Court emphasized that

“[a]bsolute equality in taxation can never be attained,”

and that “[pJerfect equality and perfect uniformity of

taxation as regards individuals or corporations . . . is a

dream unrealized.” Jd. at 371-72 (citations omitted).”

In General American, the Court similarly concluded that

imprecisions in tax burdens with respect to certain in-

dividuals or transactions were not fatal. “Where the tax-

ing statute, which is in lieu of a local tax assessed on

residents, discloses no purpose to discriminate against

nonresident taxpayers, and in substance does not do so, it

is not invalid merely because equality in its operation as

compared with local taxation has not been attained with

mathematical exactness.” 270 U.S. at 373. This holding

is controlling here.

Moreover, in subsequent cases the Court has repeat-

edly indicated in related contexts that some inexactness

in the imposition of tax burdens is permissible, especially

where, as here, alternatives have been shown to be admin-

istratively cumbersome. For example, in American

Trucking Ass'n, Inc. v. Scheiner, 483 U.S. 266, 296

(1987), the Court struck down a flat tax with discrimina-

—— —s —

" Cf. Rodriguez, 411 U.S. at 41 (“No scheme of taxation, whether

the tax is imposed on property, income, or purchases of goods and

services, has yet been devised which is free of all discriminatory

impact.”) ; Illinois Cent. R.R. Co. v. Minnesota, 309 U.S. 157, 161

(1940) (In the context of an equal protection challenge to a tax

statute, the fact “[t)hat the apportionment may not result in

mathematical exactitude is certainly not a constitutional defect.

Rough approximation rather than precision is, as a practical mat-

ter, the norm in any such tax system.”) (footnotes omitted).

tory effects while at the same time reaffirming that “the

Commerce Clause does not require the States to avoid

flat taxes when they are the only practicable means of

collecting revenues from users and the use of a more

finely gradated user-fee schedule would pose genuine ad-

ministrative burdens.” See id. at 296 n.26 (because of

“the administrative impossibility of precise apportionment

according to road use,” a tax based on vehicles’ fair mar-

ket value was upheld “as a rough approximation of use”

in Capitol Greyhound Lines v. Brice, 339 U.S. 542, 546

(1950) ).

Here, Missouri has demonstrated that substantial ad-

ministrative burdens would attend the use of other alter-

natives, such as “matching” sales and use tax rates within

each jurisdiction. See J.A. 69-85 (Stipulation of Facts,

Exh. H). But, more importantly, even if sales and use

tax rates could be equalized within each jurisdiction, as

petitioners suggest they should be, some inexactness in tax

burdens would remain. See Pet. App. A-18 ( citing

American Modulars Corp. v. Lindley, 376 N.E.2d 575,

577-78 (Ohio), cert. denied, 439 U.S. 911 (1978)).”

Hence, even the alternative that they endorse as constitu-

tionally permissible would be incapable of meeting their

Own erroneous transaction by transaction test.

In American Modulars, the Ohio Supreme Court struck down

a local sales and use tax statute despite the fact that sales and use

taxes matched within each taxing jurisdiction. The Court reasoned

that the scheme violated the Commerce Clause because an individual

might travel to a jurisdiction with a lower tax rate than their

“home” jurisdiction and thereby make an in-state purchase that

would be taxed less heavily than an out-of-state purchase would be.

See American Modulars, 376 N.E.2d at 577 & n.5. Amici submit

that the American Modulars decision is erroneous and that the tax

scheme at issue there was plainly constitutional; indeed, the peti-

tioners in this case indicate that a tax scheme which equalizes

local sales and use taxes within each jurisdiction is constitutionally

unobjectionable. Pet. Br. 28 & n.16. Yet, as American Modulars

illustrates, even such constitutional schemes result in some inexact-

ness when examined on a transaction by transaction basis.

In sum, there is no workable way for States to attain

absolute precision in tax burdens with respect to all

transactions, while at the same time allowing local juris-

dictions meaningful taxing authority and making inter-

State commerce pay its “fair share.” However, Missouri

has selected a means of apportioning burdens which,

under this Court's precedents, presents no unconstitu-

tional discrimination against interstate commerce."

Given this, it is not necessary to determine whether

the alternative of matching local sales and use taxes

would provide a closer (although still imperfect) ap-

proximation. The Court has repeatedly expressed its re-

luctance to interfere with a State’s choice of taxation

methods, especially where, as here, no “perfect” alterna-

tive exists. See, e.g., Travellers, 185 U.S. at 371. The

same reasoning should govern here.

‘8 Given the great importance of the State’s interest in permit-

ting local governments to exercise independent taxing authority,

and the inability to achieve that goal without generating some

inexactness in tax burdens, Missouri’s statute should be upheld

even if the Court were to find that it was discriminatory. In

New Energy Co. v. Limbach, 486 U.S. 269 (1988), the Court

explained: “Our cases leave open the possibility that a State may

validate a statute that discriminates against interstate commerce

by showing that it advances a legitimate local purpose that cannot

be adequately served by reasonable nondiscriminatory alternatives.”

Id. at 278; see also Wyoming v. Oklahoma, 112 S.Ct. 789, 801

(1992); Maine v. Taylor, 477 U.S. 131, 140-52 (1986) (upholding

a state statute analyzed under this standard).

CONCLUSION

The writ of certiorari should be dismissed for lack of

standing. In the alternative, the judgment of the Supreme

Court of Missouri should be affirmed.

Respectfully submitted,

RICHARD RUDA *