Earl Warren: Number 51, Federal Trade Commission, Petitioner, versus Travelers Health Association. Mr. Weston, you may proceed.
Charles H. Weston: Mr. Chief Justice, may it please the Court. The question which is presented is whether the Federal Trade Commission is authorized to regulate deceptive practices of a company which does a mail order insurance business, if the state of incorporation has a law which prohibits a domicile insurance company from engaging in deceptive practices inside that state or outside the State. The Commission filed a complaint against the respondent under Section 5 of the Federal Trade Commission Act. Evidence was taken and hearing examiner issued and initial decision and this was appealed to the Commission. It found that respondent's advertising was misleading in certain respects and it entered a cease-and-desist order. The court below held by a majority vote, that Nebraska regulated respondent's advertising in other State and that this advertising, was thereby regulated by State law within the meaning of this proviso of Section 2 (b) of the McCarran Act. The Court knows that that Act was passed to authorize state regulation and taxation of insurance companies free from Commerce Clause limitations. It provides that no act of Congress which does not specifically deal with the insurance business shall invalidate or supersede any state legislation in this field. The Act was passed to remove doubts as to validity of state legislation which is had been caused by the decision of this Court in Southeastern Underwriters case. A special provision is made as to --
Felix Frankfurter: To remove doubts or to displace it?
Charles H. Weston: Excuse me?
Felix Frankfurter: To remove doubts or to displace it?
Charles H. Weston: Well, I think it did -- if the doubts were there, they were removed I suppose [Attempt to Laughter]. As to the antitrust laws, including the Federal Trade Commission Act, special provision was made. These laws were not to apply to the insurance business before June 30, 1948, now there was a moratorium. By the proviso of Section 2 (b), they were to apply after that date. The proviso was before this Court in National -- in National Casualty case, at the 1957 term. The companies there involved did business only through agents and they were licensed in every state in which they sold policies. The advertising which the Commission had found to be deceptive was shipped to the agents and they distributed locally to potential purchasers. The Court said that in view of this local distribution, the laws of the States regulating deceptive insurance advertising unquestionably were enforceable against the activity within their respective boundaries. And it held that where States were regulating this kind of advertising under their own laws, it was regulated by State law within the McCarran Act provision. The facts in the present case were -- presented a very different picture. Respondent has no agents and all its business is solicited by mail. It sells policies in all States, but it is licensed only in Nebraska and Virginia. It sends a series of letters to prospect sometimes as many as 30, including in the letters, policy application, a policy application form and advertising material. It issues all policies, pays all claims and conducts this promotion material from its home office which is in Nebraska. The names of prospects are obtained from its own policy-holders and it solicits only white-collar workers, in fact only white, white-collar workers. The policy, which it offers, provides for payment for the specified sum during each week that the insurance is disabled by sickness, there's a maximum period of 52 weeks. A State customarily regulates conduct which is within its borders. Phrase regulated by State law as applied in connection with prohibition of certain conduct would ordinarily be understood to mean regulation by the law of the State where conduct occurs and has its adverse effect. I think that there is particular reason for giving the phrase this meaning into the McCarran Act, because its affect in that Act is to withdraw from the public the protection given by certain federal statutes to the extent that State law gives protection. The Trade Commission Act protects the public against deceptive acts and practices in all interstate transactions. Preventing deceptive promotion, or sale of policies which insure against some of the laws covered by sickness or accident is certainly as of much public concern as protecting it against deceptive promotion of sale of ordinary items of commerce. There is every reason to believe that Congress would not have withdrawn the protection of federal act on the basis of State protection unless the state protection was given by a law readily available to the persons affected; that is the law of the State where the insured lived and was mislead.
Speaker: What do you find in the legislative history of the McCarran Act?
Charles H. Weston: We think that it --
Speaker: (Voice Overlap) limited interpretations of law?
Charles H. Weston: We think -- we think that if supports this view. The Committee Report on the bill in both the House and Senate said that it was a purpose of Congress to secure adequate regulation of insurance. Section 10 -- this -- the proviso of Section 2 (b) was not in the bill as passed in the Senate or in the bill as passed in the House. It came into the bill -- it was introduced in the bill by the conferees pointed to adjust the differences between the two branches. Senator McCarran was one of the three Senate conferees and speaking of this proviso, he said that Federal legislation would not be displaced except by State law amicably covering the field. Senator Ferguson was another of the conferees. He said that If a State authorized a monopolistic combination of insurance companies which did business in numerous States that would immunize them from the Sherman Act, in the State of enactment, but not in other States. Senator O'Mahoney, the third conferee, made a quite similar statement. In other words, regulation by State law which displaces federal statute is regulation by the law of the locality. In Travelers Health against Virginia, this Court referred to the unwisdom, unfairness and injustice of permitting policy-holders to enforce their claims against an insurer only in some distant State where the insurer is incorporated. In McGee against International Insurance at the 1957 term, it said that if policy-holders having policies by an out-of-state insurer, would if they -- they would be at a severe disadvantage, if forced to follow the insurance company to a distant State in order to hold it legally accountable. In that case --
Speaker: (Voice Overlap) constitutional right -- constitutional power of Nebraska to regulate its domestic insurance companies with reference to transactions in other States.
Charles H. Weston: Well, my argument is irrespective of the constitutional right of Nebraska --
Speaker: Or to pass (Voice Overlap) --
Charles H. Weston: -- to do that.
Speaker: -- raise that contention?
Charles H. Weston: We raise -- we think that it raises a -- an issue which might be -- maybe substantial and I was going to leave that point to the discussion in our brief, it is discussed in the brief.
Charles E. Whittaker: Mr. Weston, why should it have to be -- I'm just -- it seems to me, your contention is that though Congress said, Regulation of the business of the insurance was to be the concern of the States, you take the position that their regulation is not "efficient," "sufficient" or "adequate", is that any of the Commission's business?
Charles H. Weston: No. I -- I think, you mistake our position. In the first place, we think that general provision of that regulation of insurance being the concern of the States is not the controlling factor under this special provision with reference to the antitrust laws of the Trade Commission Act. Thereto apply unless the State has regulated. Now, regulate, of course, can have various meanings. What we suggest is that the meaning of -- giving it the meaning, regulation by the State where the injury is suffered, where the person is who's -- in whose interest the protection is given is regulation, it should be regarded as regulation by that State, not by the law of some distant state.
Charles E. Whittaker: Were these consisting -- the (Inaudible) regulation by the State is adequate, efficient or sufficient (Inaudible) and is not a question of character judging the determination to occur (Inaudible)
Charles H. Weston: I would agree with you on that and -- and that is -- we're not making that contention. We are saying that --
Speaker: Suppose that argument objected (Voice Overlap) --
Charles H. Weston: Yes.
Speaker: -- with the contention.
Charles H. Weston: Yes. We -- we are not making that argument. We are saying that mere regulation by the state of incorporation does not constitute the kind of state regulation which removes the application of the antitrust laws and the Trade Commission Act.
Speaker: But it can -- that's just another form of your oral argument rejected the National Casualty. You say that the State -- you sat there in the State and it shouldn't have to be effective regulation. Now, you say that this is not effective regulation because the States in which these -- this insurance company does business, has no control over the insurance company. It's only Nebraska and that people who live in other States have to resort in Nebraska for a -- for a relief and you say that isn't effective. What's the difference between -- the essential difference between your position in the old case and the one now?
Charles H. Weston: I think the difference is that there -- effective had to be determined on the basis of the kind of state-by-state consideration of what they were doing. Our position here is --
William O. Douglas: Well, you're following basically the concurring opinion of the Chairman?
Charles H. Weston: Yes. Certainly --
William O. Douglas: Chairman Gwynne.
Charles H. Weston: Yes. I -- I would like to mention that because I think that it -- it's of some significance. He was a member of the House Judiciary Committee when the McCarran Act was passed. He participated rather permanently in the debate on the bill. He dissented from the Commission's ruling, jurisdictional ruling in National Casualty. In this case he wrote concurring opinion on the question of jurisdiction. He said that what was referred to in the McCarran Act was regulation by the law of the State whose citizens are being affected not the law of some other state operating extraterritorially. He said that when Congress permitted States to regulate free from commerce obstacles -- Commerce Clause obstacle, it did not permit them -- permit one State to regulate for another State. But that is the effect if Nebraska law operates to displace in all other States, a federal statute which otherwise would be applicable.
Charles E. Whittaker: Mr. Weston, do you undertake the support from the languages used by Chairman Gwynne in his concurring opinion?
Charles H. Weston: Well, I'm -- don't have in mind at the moment to have the precise language of all -- everything he says.
Charles E. Whittaker: Well, do you support this language? I think how this Section 2 (b) provision refers to the laws of the State whose citizens are being affected --
Charles H. Weston: Yes.
Charles E. Whittaker: -- by the advertising of the words and not to the laws of some other State, operating extraterritorially. This protection by the McCarran Act offer the individual State, protection to the State from the paramount federal power is difficult to reconcile with the theory after making one State subject to the laws of another State, in which laws they have no part in making. Do you subscribe to that language?
Charles H. Weston: Well, the -- that latter part would raise a question of possible --
Charles E. Whittaker: Well, it didn't make any sense to me at all.
Charles H. Weston: Well -- I said the -- the latter part may raise the question as to, the possible conflict were Nebraska interprets deceptive practice in one way -- Nebraska corporation, though its operating in Illinois, Illinois interprets it another way. But, I think that essentially his position that it means, the law of the State whose citizens are being affected and not the law of some other State is sound and supported by a legislative history as well as all natural ordinary test for construing legislation. Now, I'd like to turn to the question which maybe presented here and that is whether respondent's advertising is regulated by the laws of the States to which it is mailed. Respondent has not previously made this claim. It is claimed -- it -- before the Commission and in the court below, it claimed regulation only by virtue of the law of Nebraska. I do not think that it is claimed even in this Court that it is regulated by any other State. Its brief says that these other States are empowered to regulate and empowered to enforce the Model Fair Trade Practice Act against advertising mailed into the State by an out-of-state insurer, but it has not said that these laws do apply to this kind of advertising. I think that that rather ambiguous word, empowered means simply that a State can enact legislation regulating this kind of advertising, which would have some measure of enforceability within constitutional limits. Now, the various State Attorney Generals should know what their laws provide, 20 of them joined in the amicus brief filed in the court below by Attorney General from Nebraska. They claimed -- they did not claim that respondent was regulated by any State other than Nebraska. They have not -- a similar brief has been filed in this Court and they've not made this -- that claim in this Court. The claim is that the State -- other States have regulatory power and that the decision in Travelers Health against Virginia indicates that these States may also regulate. I don't say that they have regulated. Most of the States adopted the Model Fair Trade Practice Act before June 30, 1948.
William J. Brennan, Jr.: What's the number up to now, Mr. Weston, is on 44, so less than the --
Charles H. Weston: I think all the [Attempt to Laughter] or possibly all now --
William J. Brennan, Jr.: Possibly all --
Charles H. Weston: -- but not the District of Columbia. This was I say, has been in effect generally, for some 12 years. Yet neither the brief that the attorney -- State Attorney General had filed -- now, the brief filed by two insurance company trade associations refers to a single proceeding brought by a State under that Act against a non-licensed mail order insurer. I think that the reason there's no claim that this -- this Act applies or no showing that it ever has been applied, is that it does -- it does not apply. It applies only to a domestic company or a firm, a licensed firm company. It provides that any order issued under the Act shall be enforced in the courts of the State wherein the person resides or has this principal place of business. A non-admitted foreign company does not reside or have any place of business in the State. Furthermore, this Act makes it unlawful to engage in deceptive practices in the State in the conduct of the insurance business. The one who engages in deceptive practices in the State while conducting the business of insurance is engaging in business in the State. All States require such a company to paying the license, but no State is required the license of respondent except Virginia under its blue sky law.
Felix Frankfurter: Mr. Weston, can you forgive me, if I inquire whether I understood you correctly to say that the reason none of these statutes have been enforced against a concern like this is that they're construed not to apply such concerns, is that it.
Charles H. Weston: Yes.
Felix Frankfurter: But if they don't apply then the McCarran Act doesn't apply, does it?
Charles H. Weston: No. The -- the McCarran does -- does apply.
Felix Frankfurter: What?
Charles H. Weston: The McCarran -- well, I don't -- what you mean by the McCarran Act applies the --
Felix Frankfurter: (Voice Overlap) --
Charles H. Weston: -- the federal (Voice Overlap) --
Felix Frankfurter: Does the -- there's nothing to supplant federal regulation.
Charles H. Weston: That's right.
Felix Frankfurter: Well, then there's -- what kind of problem have we got?
Charles H. Weston: Well --
Felix Frankfurter: (Voice Overlap) state statute?
Charles H. Weston: The --
Felix Frankfurter: If it doesn't apply, if -- if the State laws have no applicability, then the -- the immunity or whatever you call it, the McCarran Act doesn't come into existence, is that right?
Charles H. Weston: Yes. I'm now talking about the laws of the States to which the advertising material is sent.
Felix Frankfurter: Oh no, no -- no.
Charles H. Weston: The -- the respondents mean and I say practically sole claim is on the basis of the law of Nebraska.
Felix Frankfurter: Yes. But you -- and you say I'll understand you, that the Nebraska law doesn't regulate this activity of this insurance company, is that right?
Charles H. Weston: No. I say that the laws of the -- of the -- of other States don't regulate what comes into this State. I say that they apply only to a domestic company or there was a licensed foreign company. Now in Nebraska --
Felix Frankfurter: There is no doubt that Nebraska can deal with this if it chooses to enforce its law, is that right?
Charles H. Weston: It certainly can deal with it as far as Nebraska is concerned.
Felix Frankfurter: I don't mean -- I don't mean constitutional powers, statutory power, I mean there are on the books of State statutes which can regulate this practice insofar as regulation can be affected in any circumstances, is that right?
Charles H. Weston: There is that law in Nebraska, but not in other States because my contention is that the laws which they have enacted apply only to their domestic companies and licensed foreign companies.
Felix Frankfurter: Well, I received my -- my puzzlement that those other States do not raise this problem because there is no supplanting state legislation.
Charles H. Weston: That's true, they do. But I -- I wanted to remove that aspect, if possible, from the case so that it would be confined to the question of the possible effect to the Nebraska law.
Felix Frankfurter: I understand that. Well then --
Charles H. Weston: I --
Felix Frankfurter: -- then I can see the argument, that's all right.
Charles H. Weston: Now, we deal in our brief, we think that even if some State should construe its law as applying to the mere mailing into the State of policy application forms and advertising. That there would be so many obstacles to enforcement that it would not be the regulation contemplated by the McCarran Act. I think I will leave that point to the brief.
Felix Frankfurter: That's a -- that argument carries you far, doesn't it?
Charles H. Weston: Well [Attempt to Laughter] --
Felix Frankfurter: As you find it in this field?
Charles H. Weston: Yes. They really are a quite -- quite a series of steps, each of one -- each of which presents a substantial problem.
Charles E. Whittaker: Mr. (Inaudible) do you really believe that if this company sent misleading literature down to Missouri from Nebraska and the Missouri Commission imposed penalties upon them and reduced it to a judgment, then sued on the judgment in Omaha that the Omaha courts would not enforce the judgment here, as argued in your briefs, under Full Faith and Credit clause?
Charles H. Weston: No. I --
Charles E. Whittaker: (Voice Overlap) --
Charles H. Weston: -- I don't think, we said we wouldn't enforce it. I said that there would be question of to what extent the Full Faith and Credit clause would require the Nebraska's courts to honor a judgment issued under the regulatory law of another State. And their various -- that's -- there'd be also various problems, question whether state officials were authorized to go into the courts with another State to prosecute a suit.
Speaker: We also have problem, I suppose, as to whether Missouri could reach anybody who sue.
Charles H. Weston: Well, it would have to be by service by mail and that would be the Travelers Health against Virginia question that was decided by this Court. We're assuming that they could reach them by mail, although there's no such provision in the Model Act itself. Now, I would like to point out that the jurisdiction of the Federal Trade Commission to regulate mail order insurance advertising has been recognized by the industry itself. And it is recognized that it has this jurisdiction because the States are unable to regulate effectively. The Commission exercised this jurisdiction by promulgating, in February 1950, Fair Trade Practice Rules governing mail order insurance advertising. An article based on interviews with state and federal officials and insurance companies and trade association officers written by the Assistant Attorney General of Kansas, stated that this rules had been promulgated at the instigation of the industry. An article written by the general counsel of the National Bureau Casualty Underwriters says that these rules were issued as the out grow for the general industry conference of mail order insurers. Another writer gave as a probable cause for the adoption of the rules the fact that the problem of mail order accident in health insurance had been a troublesome one for years and the States seemed unable to deal with it adequately. In closing, I would just like to call attention to the fact that I think inadvertently, the request made in the conclusion in our brief is too broad. The respondent has not criticized this. We ask that the Court reverse the judgment below and with directions to deferring the Commission's order. It appears that respondent did not abandon in the court below its contention that the evidence wasn't sufficient to support the findings as to the misleading affect of its representations and the Court did not pass in this issue. I assume, therefore, that if judgment is reversed, the case should be remanded for further proceedings.
Earl Warren: Mr. Fraizer.
C. C. Fraizer: Mr. Chief Justice, Honorable Associate Justices. Nebraska had a brief equivalent of a Fair Trades Practice Act, as far back as 1913, it's quoted in my brief, long before anyone ever dream of South-Eastern or the McCarran Act, or subsequent happenings. The brief, of course, contains the terrific match of Nebraska regulatory legislation. Nebraska does regulate the Travelers Health Association. It does regulate the insurance business in general. Nebraska gave Travelers Health Association the only light that has when granted of the charter in 1904. Nebraska requires that Travelers Health be financially responsible, requires that settlement of claims and all that sort of thing, the conduct of the business, the conducting in a descent and a high class manner. Nebraska requires Travelers to report annually, what it received, what it paid out, what it's got on hand. Nebraska, every three years, examines everything that Travelers Health does. The State prescribes that what its policy form shall contain, what policy form shall not contain. Nebraska, I think its 1948 about 1949, adopted a department rule, number 16, which is in the record, requiring all Nebraska companies to keep a complete file of its advertising material available for the convenient examination and checking of examiners of the Nebraska Insurance Department. Nebraska joined with the a large number States in -- through the National Association of Insurance Commissioners in creating what became known as the advertising rules, copy of the rules attached to Nebraska Attorney General's amicus brief which is joined in by 27 other States and I think referred to in a separate amicus brief of Illinois and also in the amicus brief of Health Insurance Association of America and the American Mutual Insurance Alliance. With all due respect to counsel, I've lived with this case for five years. I've lived with the insurance regulation for about 19 years having formally been insurance commissioner of the State of Nebraska. I'm sure counsel did not mean to misstate, but in the court below and the Eighth Circuit, we used as second barrel in our gun, so to speak, Travelers versus Virginia and, of course, later followed by the McGee case, McGee versus International. So counsel misspoke and I'm sure he did it unintentionally. Nebraska does regulate the other States, in effect, in their amicus briefs have said that they regulate the various retaliatory laws of States and the National Association of Insurance Commissioners having its membership all of the States of the union plus, Puerto Rico and Virgin Island, I believe, composes an interlocking or network of regulation on a state basis, but nevertheless with a voluntary national aspect that really regulates this business. I'd be happy to attempt to answer any questions. I rather deal with -- I've responded to counsel's argument up to this point at least.
Earl Warren: Very well, any response?


William H. Rehnquist: We will hear arguments next in Number D. H. Holmes Company, Limited, against Shirley McNamara, Secretary of Revenue and Taxation of Louisiana. Mr. Rinker, you may proceed whenever you are ready.
Andrew Rinker, Jr.: Mr. Chief Justice, and may it please the Court, in this case for the first time since its decision in the Complete Auto Transit versus Brady the Court is faced with a question of whether a state may constitutionally impose a direct use tax on the value of goods while those goods are still in the stream of interstate commerce. Appellant Holmes is a Louisiana corporation operating department stores in Louisiana and three other states. During 1979 to 1981, Holmes as a part of its marketing strategy contracting with various designers of catalogues in New York for the design, creation, printing and distribution of its catalogues. In turn, these catalogue designers contracted with printers in Atlanta, Boston, and Oklahoma City for the addressing, printing, and mailing from their local post offices direct to certain select residents of the states in which Holmes does its retail business. At no time did Holmes or any of its agents or employees have any contact with, receive or take possession of the catalogues which had been mailed directly from the out of state post offices to selected residents within the State of Louisiana.
Harry A. Blackmun: How many states did these residents reside in?
Andrew Rinker, Jr.: They are in the State of Louisiana and three other states located in the Gulf Coast areas.
Harry A. Blackmun: Three? Which ones?
Andrew Rinker, Jr.: Florida, Mississippi, and Alabama.
Antonin Scalia: The facts here only apply to the--
Andrew Rinker, Jr.: To the 82 percent of the catalogues which actually went into the State of Louisiana. Yes, sir.
William H. Rehnquist: --And Holmes owned those catalogues, didn't they?
Andrew Rinker, Jr.: Well, sir, that question is still at issue. Although the Court below determined that Holmes did own the catalogues at the point at which title to the catalogues was transferred to the particular residents, you will note that in the particular contract as described and was found by the lower courts, we actually contracted for a service, that is, the construction of catalogues and the subsequent sending of those catalogues directly to residents. At no time did Holmes actually take title because we contracted for the performance of a service rather than for the purchase of particular goods.
William J. Brennan, Jr.: Well, what happened to any catalogues that weren't delivered?
Andrew Rinker, Jr.: If the catalogues weren't delivered to the selected residents in Louisiana, the post office was instructed by the instructions on the catalogue to leave those catalogues with the then current resident, and if they weren't distributed to the then current resident they were distributed or sent back to the home store.
William J. Brennan, Jr.: So Holmes got them back.
Andrew Rinker, Jr.: Holmes ultimately would get the catalogues back that weren't actually distributed. That's correct, Your Honor.
William J. Brennan, Jr.: Even though you suggest they are not taxable?
Andrew Rinker, Jr.: Those, the ones that Holmes got back, yes, Your Honor, are subject to tax because in that particular situation Holmes then obtained possession and control over those catalogues incident to ownership. The basis of a use tax--
William H. Rehnquist: Do you think that that much should turn on an incident of title? I mean, Holmes put this whole process in operation where the catalogues were created.
Andrew Rinker, Jr.: --That's correct, Your Honor, but we have to focus on the purpose and the incidence of a use tax. A use tax is one which is designed to tax some activity of the taxpayer within the taxing jurisdiction. In this particular case Holmes performed no activity within the taxing jurisdiction to subject it to tax. Holmes did not purchase the catalogues within the taxing state. Clearly the purchase would have taken place in one of the other states, either in New York or where the printers are located. The use of the catalogues by Holmes in connection with any use by Holmes, none of that use took place within the taxing jurisdiction.
Sandra Day O'Connor: Well, Mr. Harrison, I guess, though, that Holmes caused the distribution in Louisiana of the catalogues for its benefit.
Andrew Rinker, Jr.: Holmes... the only activity--
Sandra Day O'Connor: So is the taxable activity the causing of distribution of the catalogues for its benefit in the state?
Andrew Rinker, Jr.: --Basically that's correct. It's the importing of the catalogues or placing an order which caused the catalogues to ultimately be distributed--
Sandra Day O'Connor: Is that not an activity that can be taxed in the jurisdiction?
Andrew Rinker, Jr.: --In the court below the only incident of taxation was causing these catalogues to be imported. There was no evidence of any other activity performed by Holmes in connection with these catalogues. For example, there was no evidence that Holmes placed--
Sandra Day O'Connor: Is that an insufficient activity for a jurisdiction to impose a tax?
Andrew Rinker, Jr.: --Yes, it is.
Sandra Day O'Connor: Why?
Andrew Rinker, Jr.: This Court has focused on jurisdiction to impose a tax in two separate areas. Although they are separate, they are somewhat related. One is the due process ground and the other has to do with the commerce clause ground.
Sandra Day O'Connor: You didn't raise a due process issue here.
Andrew Rinker, Jr.: That's correct. Holmes does not dispute that Holmes... that Louisiana and Holmes have a due process contact, but the issue here is that there is no contact between the activity or the various activities involved with importing the catalogues and the State of Louisiana. Simply by placing an order does not constitute activity certainly in light of this Court's past decisions on what constitutes activity subject to tax which is sufficient to impose the tax.
Sandra Day O'Connor: I just don't understand the argument. If the activity is sufficient for due process purposes to permit the taxing jurisdiction to tax, then how does the commerce clause change the result?
Andrew Rinker, Jr.: I don't agree with your premises, Justice O'Connor, and that is that the activity does not create the right of a state to tax. Holmes, because it operates department stores, it makes sales, it owns property, creates in Louisiana the right to actually tax Holmes, but the particular activity which we are talking about here, and that is the distribution of catalogues, does not establish a link with the State of Louisiana which allows Louisiana to tax it on commerce clause grounds. On due process grounds, certainly, no one can argue that Holmes has great and significant contacts with the State of Louisiana. But for commerce clause purposes at least as far as the way this Court has interpreted so far, is that the tax has to be imposed on the activity of the taxpayer within the taxing jurisdiction.
Byron R. White: Suppose a customer of Holmes ordered from Holmes an item of equipment. Holmes ordered it from out of state and had it shipped directly to its customer, and this customer is liable for use tax.
Andrew Rinker, Jr.: That's correct.
Byron R. White: That is because they are going to use it in the State of Louisiana.
Andrew Rinker, Jr.: You are exactly correct, Your Honor. The customer would be liable for the use tax.
Byron R. White: But also Holmes, Holmes could be made to collect that tax.
Andrew Rinker, Jr.: That's correct, but--
Byron R. White: Now, I don't... and the activity is the receipt and use of something in Louisiana.
Andrew Rinker, Jr.: --You're right, Your Honor. Holmes would be required to collect a use tax, and this Court made the point very clearly in its National Geographic case, where the question was whether or not the State of California could require National Geographic to collect a use tax on sales of goods made to particular residents in the State of California.
Byron R. White: Holmes certainly is having these catalogues imported and delivered to its customers for use by them in the State of Louisiana.
Andrew Rinker, Jr.: That's correct, the customers are in fact using the catalogues. If this were a tax on Holmes--
Byron R. White: Why can't you tax Holmes for having these things imported for use in Louisiana?
Andrew Rinker, Jr.: --Well, Justice White, as you just pointed out, the person who is actually using the catalogues within the State of Louisiana is the recipient, not Holmes. Holmes cannot--
Byron R. White: Yes, but Holmes is certainly having that use provided.
Andrew Rinker, Jr.: --Holmes receives the benefit of people's using its catalogues within the taxing jurisdiction. That is certainly correct.
Byron R. White: Hopefully.
Andrew Rinker, Jr.: Hopefully will receive them. Otherwise presumably Holmes would not have ordered the catalogues in the first place. Similarly, this Court might focus on the question of whether or not in the case of the designer blue jeans or in the case of Gucci handbags, are those retailers liable for use tax in Louisiana when someone carries them around within the State of Louisiana? Technically they are using and advertising those products by having those particular articles of clothing or apparel with them at the time.
Thurgood Marshall: Could Holmes have made a dollar in Louisiana without those catalogues?
Andrew Rinker, Jr.: Yes, they could have, Your Honor.
Thurgood Marshall: How?
Andrew Rinker, Jr.: People go and shop at Holmes and have been shopping at Holmes for over 150 years, long before catalogues ever became--
Byron R. White: Those are pretty old people. 0 [Generallaughter.] You mean in the Holmes store.
Andrew Rinker, Jr.: --Somebody would still be shopping over there also.
Thurgood Marshall: You mean in the Holmes stores.
Andrew Rinker, Jr.: Yes, Your Honor, they have been shopping at the Holmes stores, and it was not necessary for the catalogues to be distributed in order for them to purchase items from Holmes.
Thurgood Marshall: Well, why did Holmes waste all that money if it wasn't necessary?
Andrew Rinker, Jr.: Holmes at one time was contemplating--
Thurgood Marshall: Did it have a loss or something?
Andrew Rinker, Jr.: --No, there wasn't a loss involved, Your Honor, but there are several reasons for distributing catalogues other than the cases that you faced... other than the situations in the cases that you faced where there is--
Thurgood Marshall: To get business. There is no other reason that I can conceive except for business purposes.
Andrew Rinker, Jr.: --That is correct. It is for business purposes.
Thurgood Marshall: And to get... the only business they were interested in was selling.
Andrew Rinker, Jr.: That's correct, Your Honor, just as Holmes--
Thurgood Marshall: And the only interest in Louisiana was to sell something to a Louisiana citizen.
Andrew Rinker, Jr.: --That's right. That's why Holmes caused them to be imported. There is no doubt about it. But the public relations effect of the catalogues--
Thurgood Marshall: You say Holmes caused it to be imported.
Andrew Rinker, Jr.: --That's correct, Your Honor, they did cause it to be imported.
Thurgood Marshall: And if they had picked them up and delivered them themselves they would have been in trouble.
Andrew Rinker, Jr.: If they had to come up and deliver it themselves, there is no question that at that point Holmes would have had possession and control of the catalogues within the State of Louisiana. That possession and control would be sufficient to impose the tax.
Thurgood Marshall: I can now see the memorandum that the law department gave Holmes.
Andrew Rinker, Jr.: I apologize, Your Honor.
Thurgood Marshall: I can now give you the law memorandum that the lawyers gave Holmes. If you do it this way you won't have to pay taxes. Is that correct?
Andrew Rinker, Jr.: That's basically correct. Our opponents, however, suggest that we did this solely in order to avoid taxes. That is certainly not the case.
Thurgood Marshall: Well, what other reason?
Andrew Rinker, Jr.: Holmes ordered its catalogues in this manner because it participated in what is called the Atkins Buying Organization. In its participation with this organization in New York it obtained the design, construction, printing, and distribution of catalogues at discount rates. It had no control over where the catalogues were going to be designed. It had no idea where the catalogues were going to be printed. It simply relied on its participation in this purchasing organization in New York to handle all of this. If in fact the purchase organization had found that the best arrangement could have been made with Louisiana printers, it perhaps would have contracted with Louisiana printers for this purpose. In fact, the organization didn't find that. Holmes did not adopt this method of distributing catalogues in order to avoid Louisiana taxes. We are focusing here on the obligation of a state to collect a use tax versus the obligation for it to have a use tax imposed upon its use of goods in the state. As I mentioned in the National Geographic case, this Court specifically pointed out the distinction between imposing the obligation on Holmes to collect a use tax, which we would not dispute in this case. If in fact this were a situation where the taxing state was trying to get Holmes to collect taxes on the value of the catalogues in the hands of a recipient, there would be no problem, and the state could do that. The state could impose the obligation on us. Because we have... because Holmes has due process contacts with Louisiana, the state could require us to collect the tax from the recipients. However, this Court made it very clear in its decision in National Geographic by stating that however fatal to a direct tax, and that is the tax we are talking about here, direct tax, direct use tax on Holmes on the value of these catalogues, might be, that particular legal argument does not apply in the case of imposing the obligation on the taxpayer to collect a use tax on someone else in the taxing state who actually used the goods which are sought to be taxed. That is the basic difference in our case. In this case the operating incident of any activities by Holmes took place outside of the taxing state. All of the manufacture and construction of the catalogues, the addressing, the mailing took place out of Louisiana. None of the activity sought to be taxed to constitute use or distribution with Louisiana took place in the State of Louisiana.
William H. Rehnquist: But if one looks at the whole plan, so to speak, certainly you can pick out incidents that took place elsewhere, as you point out, but the idea was Holmes', they wanted to engender a distribution of catalogues in Louisiana that would help sell their products in Louisiana. There are certainly a lot of Louisiana ties.
Andrew Rinker, Jr.: You are correct, there are a lot of Louisiana ties sufficient for establishing of the due process, for example. But I will give you an example. If in this particular case the catalogues were printed in the State of Georgia and were trucked through each of the states to get to Louisiana, including Mississippi and Alabama, presumably each of those states, if they had decided they could tax goods in interstate commerce, as we are doing here, those states could impose a use tax on the goods as they are traveling through the state.
William H. Rehnquist: But they wouldn't have nearly the claim that Louisiana would, because Holmes is located in Louisiana. The stuff is going to people in Louisiana to stimulate sales in Louisiana. Georgia and Mississippi do not have any claims like that, do they?
Andrew Rinker, Jr.: But the due process contacts between Holmes and the State of Louisiana exist in those states. For example, if we dropped off merchandise there or catalogues, those states also would have a right to impose a use tax collection obligation, but presumably... and also in those states since the catalogues are under our possession and control in the hands of the printer, those states could assess a use tax on the value of the catalogue, because the state in those states, at least in the State of Georgia where one of the printers is located, the catalogues are actually present there and we can have some control over them. Once goods are placed in the stream of interstate commerce, no one, not even the owner, is deemed to have any possession or control incident to ownership, and at all times these catalogues are located in commerce.
William H. Rehnquist: You say no one is deemed to have any control incident to ownership when goods are placed in the stream of interstate commerce.
Andrew Rinker, Jr.: For purposes of use taxation. Yes, Your Honor.
William H. Rehnquist: Well, when you add for purposes of use taxation then you are relying on some cases of this Court?
Andrew Rinker, Jr.: Yes, Your Honor. In your earlier cases prior to the Complete Auto Transit case, you pointed out that goods in interstate commerce are not subject to any type of direct tax. Presumably Complete Auto did not overrule those earlier decisions. Interstate commerce involving goods starts at the time that they are actually shipped and ends at the time of acceptance of the catalogues. In this case acceptance would have taken place upon the removal from the post office box by the recipient of the catalogue of the catalogue. At the time the recipient takes the catalogue, it is not Holmes's catalogue and no use tax can be imposed on Holmes. Therefore during the entire route from the time the catalogue is actually dropped into the mail until the recipient takes it, Holmes does not have any right to the catalogue or does not exercise any rights incident to ownership. Those rights mean possession or control over the catalogues--
Antonin Scalia: Mr. Rinker--
Andrew Rinker, Jr.: --incident to ownership sufficient for taxation.
Antonin Scalia: --Why do you say that presumably Complete Auto Transit does not overrule those cases?
Andrew Rinker, Jr.: Well, in... Complete Auto Transit dealt with, again, activities rather than taxation of goods. Complete Auto Transit--
Antonin Scalia: You can tax the activity of conducting interstate commerce but you can't tax the goods that are going through interstate commerce?
Andrew Rinker, Jr.: --The activities taxed in Complete Auto and its progeny are solely related to indirect benefits to interstate commerce. In those cases the tax was imposed, for example, in the Complete Auto case, imposed upon the gross receipts of a trucking company which shipped the goods. The Court didn't even consider the possibility that the state might tax the goods while they were in the truck being shipped. It only focused on the issue of whether the trucking activities were subject to taxation.
Antonin Scalia: Why is it more harmful to what the commerce clause seeks to protect to allow the goods to be taxed than it is to allow the activity of carrying the goods to be taxed? Doesn't either one equivalently harm interstate commerce?
Andrew Rinker, Jr.: In the first place, the activities can be more clearly identified with a particular taxing jurisdiction. For example, in Commonwealth Edison versus Montana it was clear that the coal was being mined in the State of Montana. There was an activity within the State of Montana for which a tax was imposed. In Complete Auto, the activity was the shipping on particular trucks within the State of Illinois... within the State of Mississippi that was taxed. In our case, if someone is allowed to impose a direct use tax on goods which are the commerce itself, every state through which the commerce passes would theoretically have the right to tax those goods provided that those states through which the goods were being transferred had due process contacts with the taxpayer.
Antonin Scalia: Why isn't that the same thing with the trucker who carries the goods? Presumably every state through which that trucker drives can tax the activity of his trucking. Isn't that right?
Andrew Rinker, Jr.: That's correct, but there--
Antonin Scalia: I don't see a whole lot of difference between the two.
Andrew Rinker, Jr.: --In the case of the goods, the goods are isolated... in the case of goods or the catalogues in this particular case, there has to be some kind of activity, as the Court pointed out, and the nexus test in the Complete Auto case is that there must be some nexus between... and Justice Brennan, who wrote the opinion, pointed very clearly that the connexity has to be between the activity and the taxing state. In this case there is no connection between the activity and the taxing state. There is a connexity between Holmes and the taxing state, but not between the activity--
Sandra Day O'Connor: Well, Mr. Honchell--
Andrew Rinker, Jr.: --involved in affording the catalogues.
Sandra Day O'Connor: --Now, wait a minute. If the activity is causing the distribution in Louisiana, that is connected with Louisiana.
Andrew Rinker, Jr.: But there is no operational incidence of any activity within the State of Louisiana which can be taxed.
Sandra Day O'Connor: Well, sure, it is having the catalogues distributed there.
Andrew Rinker, Jr.: Having the catalogues distributed in Louisiana does not involve any operational incidence, does not involve any act by Holmes within the taxing state. We place an order--
Sandra Day O'Connor: Holmes caused--
Andrew Rinker, Jr.: --even assuming the state's theory--
Sandra Day O'Connor: --Holmes caused the distribution. He ordered it. He paid for it. He caused the distribution in Louisiana. Or it did, I should say.
Andrew Rinker, Jr.: --Correct, it did cause the distribution in Louisiana simply by placing an order for the catalogues, but that activity took place outside of the State of Louisiana. Therefore Louisiana has no jurisdiction to tax, to impose a direct tax on an activity which took place outside of its borders.
Sandra Day O'Connor: I thought the distribution occurred within the state.
Andrew Rinker, Jr.: The actual transfer of title, perhaps, under the state's theory.
Sandra Day O'Connor: Okay. That's what we're talking about.
Andrew Rinker, Jr.: But Holmes did not engage... because the catalogues at all times, even when they are in the state, when they are in the mailbox, when they are in the postal service--
William J. Brennan, Jr.: Before they got to the mailbox there was a direction by Holmes in Alabama to the printer in--
Andrew Rinker, Jr.: --Atlanta, Boston, and Oklahoma City. Yes, Your Honor.
William J. Brennan, Jr.: --Yes. Was there not?
Andrew Rinker, Jr.: Yes, Your Honor.
William J. Brennan, Jr.: Directing the precise addresses to which the catalogues were to be delivered?
Andrew Rinker, Jr.: That's--
William J. Brennan, Jr.: And that action took place in Louisiana, didn't it?
Andrew Rinker, Jr.: --That is not correct, Your Honor, and the record certainly does not support that.
William J. Brennan, Jr.: The direction to the printer to mail them to those addresses--
Andrew Rinker, Jr.: The actual instruction... in the first place, the record does not support that the Holmes person who said, we want to order the catalogues, actually placed the order from within the State of Louisiana. That is not in the record. In the second place, the person who ordered the catalogues ordered them from a buying organization in the State of New York. The State of New York then directed the particular printers... Holmes had nothing to do with the selection of the particular printers.
William J. Brennan, Jr.: --Who gave the printer the addresses?
Andrew Rinker, Jr.: Holmes provided them to the buying organization, which ultimately got to the printer. That's correct, Your Honor.
William J. Brennan, Jr.: I see.
Andrew Rinker, Jr.: But all of those activities took place outside of the State of Louisiana.
William H. Rehnquist: Mr. Rinker, supposing that you were looking at this transaction from a philosophical point of view, from on high, and you looked at what took place in Georgia, and what took place in Louisiana, and what took place in Mississippi and Alabama and the states... which state do you think would have the greatest claim, just in a perfectly common sense way, to put a tax on this transaction?
Andrew Rinker, Jr.: Assuming that there was an actual transfer of title to the catalogues, which I mentioned earlier is still in dispute, transfer of title to Holmes prior to delivery to the particular residents, any of those states, assuming a sale had been completed there, could have imposed a sales tax, but all of those states happen to have exemptions for printed materials. All those states also happen to have exemptions from their sales tax for merchandise that is sent outside of the state or is intended for distribution outside of the state, so presumably those states could have a right to tax the catalogues, but they chose not to.
Harry A. Blackmun: Yes, but why don't you answer the Chief Justice's question?
Andrew Rinker, Jr.: As to which one has the closest contact?
Harry A. Blackmun: Yes.
Andrew Rinker, Jr.: The one that has the closest due process contact with the State of Louisiana is Holmes, but I think the problem is, we are trying to mix two different concepts, the due process concept versus the interstate commerce clause concept.
Antonin Scalia: Mr. Rinker, does it make any difference to you... from your response to the questions I gather it doesn't... that the tax is not upon the activity but upon the property?
Andrew Rinker, Jr.: It--
Antonin Scalia: I mean, so long as the activity would justify a tax on the activity we can assume that the tax is a tax on the activity as opposed to a tax on the property, which is what it is? Is that right?
Andrew Rinker, Jr.: --In brief, our argument is that since there are no activities by Holmes within the State of Louisiana, activities being those types of activities similar to the ones that this Court has addressed in its previous decisions after Complete Auto, that in fact there are no activities, and because of that the tax must be imposed on the goods.
Antonin Scalia: But you concede that if there is an activity that could be taxed as an activity, then this tax, even though it is not a tax on an activity but simply a property tax, must be upheld under the commerce clause?
Andrew Rinker, Jr.: Assuming there is an activity which has sufficient connexity and sufficient operating incidences under the state statute which requires distribution, then it would be subject to tax. That's correct. But we are saying that there are no activities in the State of Louisiana which subject the catalogues to being taxed. The incidental activities that have been referred to by the various Justices, such as placing an order, are not operational in the sense that there is no actual transportation by Holmes in the State of Louisiana. There is no mining by Holmes. There is no collection of a use tax obligation on the citizens who actually receive and do use the catalogues. And because of that we say that there is no activity in the State of Louisiana upon which the state can assess its tax.
John Paul Stevens: Mr. Rinker, let me ask you a question, if I may. Supposing instead of mailing them they had delivered the whole 100 percent of the catalogues to a Louisiana location, then distributed 82 percent to Louisiana residents and 18 percent to Mississippi residents. Could they tax 100 percent of the goods in that event?
Andrew Rinker, Jr.: Under existing jurisprudence, yes, Your Honor. All those could be taxed. The reason being is that Holmes took possession and control of the catalogues--
John Paul Stevens: There is an activity involving all 100 percent. But do you think the state would now claim they could... say 82 percent now to go Louisiana by mail and 18 percent to Mississippi. Would the state claim Louisiana can tax all 100 percent?
Andrew Rinker, Jr.: --In that particular case I would think Louisiana might try and tax 100 percent. We of course then would argue that these goods were still in the course... as long as they are not stored for our benefit--
John Paul Stevens: You may the same argument you make--
Andrew Rinker, Jr.: --and they are just temporarily stopped over, that they are intended to be continuously in interstate commerce and that that incidental stopover, we will say, to be shifted from a common carrier to the postal service is not sufficient to impose the tax on Holmes of the value of catalogues sent outside of the state.
Antonin Scalia: --You are going to lose that once you have conceded that so long as there is an activity that the state could place a tax on, and if we find there is such an activity here, it really wouldn't matter where the catalogues were shipped, right? We just look at the whole activity.
Andrew Rinker, Jr.: No, Justice Scalia. That is not the case here, because there is... if the catalogues are shipped to Louisiana and they do sit in a warehouse, for example, before being transshipped, we are engaged in the activity of storage. We are not engaged in any activity like that in the instant case.
John Paul Stevens: You would also be engaged in the activity of shipping 82 percent to local residents and 18 percent to out of state residents, and your opponent argues, well, this is the... what you have got here is the functional equivalent of that but you have just used the mails. So they must be claiming the right to tax the 18 percent as well as the 82 percent.
Andrew Rinker, Jr.: But the state tax statute deals with use, which can be defined as any type of use, including storage. Storage is one element of use. In the case where the catalogues are stored before they are distributed, a use tax can be imposed on Holmes. In the case where there is actual distribution activity, such as in the Complete Auto case, where there were... the distribution activities involved transportation of a trucking company of particular goods, that activity of distribution is subject to tax. Holmes does not engage in such activities when it is in the state. It simply places an order in a foreign state and requires those catalogues to be sent to particular residents.
Thurgood Marshall: An order for transportation.
Andrew Rinker, Jr.: I beg--
Thurgood Marshall: An order for transportation.
Andrew Rinker, Jr.: --And orders the transportation, but does not perform the activities.
Thurgood Marshall: But if they had done it with their own trucks it would be.
Andrew Rinker, Jr.: If they did it with their own trucks?
Thurgood Marshall: Yes.
Andrew Rinker, Jr.: The trucking activity could be taxed, but not necessarily the goods in interstate commerce unless the state tried to tax them because they were storing them--
Thurgood Marshall: But they could be taxed.
Andrew Rinker, Jr.: --on the trucks.
Thurgood Marshall: And so to escape the tax you send it by parcel post.
Andrew Rinker, Jr.: We didn't do it for that reason, Your Honor, but that is what actually happened in fact. If there are no further questions, I would like to save my remaining time for rebuttal.
William H. Rehnquist: Thank you, Mr. Rinker. We will hear now from you, Mr. Pugh.
Robert G. Pugh, Jr.: Mr. Chief Justice, and may it please the Court, I am delighted that you asked the trucking question. It was of interest to me to read in one of the dissenting opinions in one of the state court decisions, paraphrasing, Holmes should not be required to have their employees to ride around on the mail trucks. As a matter of fact, what occurred here and so found by the state court was that Holmes distributed the catalogues. The distribution of the catalogues is a use in Louisiana. Louisiana happens to be one of three states that adopts that word, distribution, as it relates to use. I wouldn't suggest for a moment that the word use is not broad enough to include distribution, whether or not it is so spelled out by the state. In this instance it is.
Antonin Scalia: Now, does this include... suppose I am... well, could you tax the mailman for distributing these catalogues?
Robert G. Pugh, Jr.: No, Your Honor.
Antonin Scalia: You see, the property tax, it is on the catalogues, isn't it? It is either on the purchase or the use of the property, but you have to have a property interest, right?
Robert G. Pugh, Jr.: It is the use of the property, Your Honor. What happened is, Holmes--
Antonin Scalia: Of your own property. If it is somebody else's, if I borrow a neighbor's--
Robert G. Pugh, Jr.: --It is Holmes' property.
Antonin Scalia: --If I borrow a neighbor's catalogue and read it, you wouldn't hit me with a use tax, would you?
Robert G. Pugh, Jr.: No, sir. It is Holmes' catalogues. They bought them. They paid for them. They told them precisely who to send them to. They took all of the charge customers to send them to them. That is where the list came from, the charge customers. They admitted during the trial that it is the charge customers who are more likely to use the catalogues. In addition to that, the catalogue itself spells out in the centerfold, it gives you an 800 number. It gives you all of the phone numbers for each of the local stores. In addition to that, the telephone directory, which is an exhibit here to the extent applicable for Holmes, has got a mail order number. How can you mail order what you don't know is not mail orderable? In this instance, you find out by reading the catalogue. It tells you if you want to ask further questions to call up on it. Now, Holmes owned the catalogue.
Antonin Scalia: Mr. Pugh--
Robert G. Pugh, Jr.: It was so found by the state court below.
John Paul Stevens: --Mr. Pugh?
Robert G. Pugh, Jr.: Yes, Your Honor.
John Paul Stevens: If Holmes owned the catalogues in Louisiana, did they also own the catalogues that were sent to the Mississippi customers?
Robert G. Pugh, Jr.: Well, Holmes would own those catalogues just the same as if they had been sent in Louisiana, but to answer the Court--
John Paul Stevens: Could Louisiana impose a use tax on the 18 percent that went to out of state customers?
Robert G. Pugh, Jr.: --No, sir, and would not attempt to.
John Paul Stevens: Could Mississippi impose a use tax on the 18 percent that went to Mississippi?
Robert G. Pugh, Jr.: It could if it chose to do so, Your Honor.
John Paul Stevens: You think it could.
Robert G. Pugh, Jr.: It may be that 18 percent is de minimis. I am not sure. There were--
John Paul Stevens: Well, it is a fifth of the total amount. I guess it is worth fighting about. You think an out of state... in other words, if Holmes' stores were located in Mississippi and all of the management went in Mississippi, and the catalogues just happened to be sent to Louisiana customers, you would still have as strong a case?
Robert G. Pugh, Jr.: --Well, I would have a case insofar as Louisiana is concerned.
John Paul Stevens: Right.
Robert G. Pugh, Jr.: In fact, I've got a strong case because the other--
John Paul Stevens: But you do not rely on the fact that the stores are located in Louisiana?
Robert G. Pugh, Jr.: --I rely on the fact that the stores are located in Louisiana to assist in the nexus question, and in addition to that the whole purpose--
John Paul Stevens: Do you think you need that? Do you think you need the stores... because that is why I asked you about Mississippi.
Robert G. Pugh, Jr.: --No, sir, I don't think I need the stores. But I've got 13 of them there, and I've got 5,000 employees. I've got half a million--
John Paul Stevens: But if we are focusing on the activity--
Robert G. Pugh, Jr.: --The activity is the distribution.
John Paul Stevens: --and their ownership of the catalogues just before they are turned over to their customers--
Robert G. Pugh, Jr.: Yes, sir.
John Paul Stevens: --it would be the same case, as I understand it, if the stores were located in Mississippi.
Robert G. Pugh, Jr.: As I can appreciate what the Court is saying, I do not disagree with what the Court is saying. I do say in this instance, and of course we don't have to reach the Mississippi problem--
John Paul Stevens: So that if any manufacturer mails something to a customer in another state, even free, the manufacturer can be taxed on that item in the other state, or causes it to be mailed by a third party.
Robert G. Pugh, Jr.: --Well, I guess we had better decide now whether we are talking about who is going to collect the tax. In this instance Holmes is in Louisiana. They argue that they don't have to pay the tax because they don't have somebody up in New York that is collecting the use tax for them, and of course that doesn't make a lot of sense in that Holmes is in Louisiana, Holmes is directly responsible for the tax and should be obligated to pay it, and we would insist to the Court or suggest to the Court that they ought to be liable for it.
John Paul Stevens: We are concerned about who else can be hit with this kind of tax. I assume that under the theory that the state is running here, anybody who goes to a mass mailing firm and gets, you know, has them get a list of customers, every time you send a brochure to a customer in Louisiana, you are telling me that the Louisiana courts hold that I own the brochure, and I am using it when I get it mailed to a customer, and therefore I can be taxed on that? Isn't that... that is the logic of the position the state is making, isn't it?
Robert G. Pugh, Jr.: That could certainly be construed under the position that we are taking.
John Paul Stevens: Yes. Well, that is a good source of tax revenue. What case of ours is the strongest support that you can cite?
Robert G. Pugh, Jr.: Well, the strongest support for the position that I am primarily taking in this case is the one that was handed down, xx Pipe, last year, when the suggestion was made xx the... excuse me... here it is, taxpayers are better... to establish and maintain a market in this state for the sales. That is exactly what they are doing. They are maintaining a market in the State of Louisiana for their sales by the use of the catalogues. Precisely what they are doing. In addition to that, the National Geographic case speaks in terms of being, whether or not it is disassociated from the local business. That is the last thing this is, is disassociated from the local business. It is actually promoting the local business for Holmes. And that's the purpose of the catalogues.
John Paul Stevens: More than that, you are promoting out of state business. I mean, what is the difference? If you own the brochure, as you say, you automatically own it if you have ordered it.
Robert G. Pugh, Jr.: You own it.
John Paul Stevens: And if you are distributing it in Louisiana that is enough.
Robert G. Pugh, Jr.: It is. And that's what they're doing. Now, turning back, if I may for a moment, to the state court in Louisiana ownership does not require that there be possession of the item itself. You may own something in Louisiana without possessing it. In addition to that, and so found by the lower court, in addition to that these were gifts, and the gifts are not completed until they are accepted by the resident and either kept or thrown away. They belong to Holmes from the time and during the processing, during the mailing, during their receipt in Louisiana they continued to belong to Holmes. As Justice O'Connor says and counsel acknowledged, Holmes is a dealer, a dealer who imports or causes to be imported tangible personal property into Louisiana for distribution is liable for the tax, precisely what took place here. Distribution, as I have indicated earlier, is a use that is taxable. Distinguishing between the two, there was some question, I believe, earlier concerning the sale or use tax. The basic distinction as I appreciate between the two is, a sales tax is on the freedom of purchase, and a use tax in turn is on the enjoyment of that purchase. That is precisely what Holmes was doing. They were enjoying the catalogues that they purchased for the purpose of furthering their business. Did you have a question, Your Honor? Excuse me. I saw you move your hand, and I thought you were about to--
Antonin Scalia: Don't provoke me, Mr. Pugh. 0 [Generallaughter.]
Robert G. Pugh, Jr.: --You gave me enough trouble earlier, Your Honor, I'll tell you. As I have indicated, these catalogues were designed by Holmes, admittedly by their own employees for the purpose of promoting their sales, for the purpose of generating business. They did in fact generate business. They caused people to come into the stores. For that reason we believe that Holmes is liable for the tax, and I do not believe I need any additional time unless I may answer any questions the Court might have.
William H. Rehnquist: Thank you, Mr. Pugh.
Robert G. Pugh, Jr.: Thank you.
William H. Rehnquist: Mr. Rinker, you have three minutes remaining.
Andrew Rinker, Jr.: Mr. Chief Justice, and may it please the Court, in focusing again on Justice O'Connor's question about the fact that Holmes caused the importation of these catalogues, can Holmes be subject to the tax for causing this importation? The Louisiana use tax imposes a tax on the use which defines certain terms, including the term distribution and storage. Causing importation is not--
Byron R. White: Suppose Holmes had ordered 3,000 travel alarm clocks to give to their best customers, and they told... they ordered them from out of state and gave the names and addresses of the customers they wanted the clocks mailed to. Now, do you suppose... couldn't the state charge Holmes a use tax on those clocks?
Andrew Rinker, Jr.: --Justice White, no, they could not, because Holmes does not exercise any power or control over those clocks once they come into the taxing state. A use tax is on the value of the use of tangible personal property. Holmes does not actually use those clocks in the State of Louisiana.
Byron R. White: They certainly made them available to their customers.
Andrew Rinker, Jr.: It's true, but once those clocks go into the hands of the customer, they are not in Holmes's hands, and a use tax on Holmes cannot be imposed.
Byron R. White: Say they ordered 3,000 alarm clocks. They send 1,500 of them to us, send the other 1,500 to the following people. They intend to give the 1,500 delivered to them to other people. They can be taxed on the 1,500 but not the other.
Andrew Rinker, Jr.: Yes, because there is a use within the taxing state. We exercise control, possession and control over those clocks. We can do with them whatever we want within the State of Louisiana, and those would be subject to the use tax. The ones that are mailed, however, are not subject to tax because we do not exercise any power over those clocks within the State of Louisiana incident to any ownership. Power and control over the clocks in the State of Louisiana is essential to impose the tax. The state statute uses the words distribution. Distribution is not simply causing something to be imported. Distribution involves the actual delivery.
William H. Rehnquist: But the construction of the state statute is not for us. The Louisiana court has held the state statute does cover this.
Andrew Rinker, Jr.: In determining the operational incidence of the statute, you are correct, the state court does determine that. This court, however, has the prerogative of determining whether or not the incidence upon which the state court imposes the tax does violate the commerce clause, and we are saying that this... the importing aspect of distribution is not one of the activities which the state has the power to tax under the commerce clause because in that instance there is no activity within the State of Louisiana by Holmes which can be taxed. Remember, the key word is activity by Holmes with respect to those clocks within the State of Louisiana. I would like to point out also in my closing moments that the severe burdens that might be caused by following the state's position in this case certainly, if a taxpayer can be taxed simply by having something mailed into the state, provided that taxpayer has some minimum contacts with the state, then all the materials mailed to particular residents will be subject to tax in the hands of the taxpayer. For example, Red Cross mailings. The Red Cross organization has offices in virtually every state. If they send out from Washington, D.C., or from the national or international headquarters notices soliciting funds for particular purposes, the Red Cross is using property within the State of Louisiana, and to the extent it is using property under the state's theory, the value of those pieces of paper in a state are then subject to tax. This tax would also impact universities trying to solicit particular funds for their operations. You say, well, there is no contact between a university, but I think that you will find recruiting--
William H. Rehnquist: Your time has expired, Mr. Rinker.
Andrew Rinker, Jr.: --Oh, sorry. Thank you, Your Honor.
William H. Rehnquist: The case is submitted.