Earl Warren: -- versus James S. Reily, Collector of Revenue, State of Louisiana. The orders -- the other orders of the court are cert -- have been certified by the Chief Justice and filed with the clerk and will not be orally announced. Now, Mr. Taylor.
Benjamin B. Taylor, Jr.: Mr. Chief Justice Warren, members of the Court, may it please the Court. This is the second argument of one of the cases which was argued before eight-judge court last term. This is a suit for refund on tax moneys paid under protest to the State of Louisiana where the field of state taxation of interstate commerce, constitutional law, the Interstate Commerce Clause forbids tax discrimination by states against interstate commerce. The equal protection of the laws clause or the Due Process Clause forbids arbitrary tax discrimination by states even if there is no element of interstate commerce. Classifications for tax purposes may not be held by the arbiter. The Louisiana Supreme Court has held that Louisiana may discriminate against the multistate or interstate business and thus give a direct commercial advantage to local business. It held specifically that Louisiana may place an excise tax upon the interstate business of Halliburton which is three times as heavy as the tax burden would be -- upon the same identical, and I emphasize the word “identical” operation if it were purely local and intra-Louisiana. The Halliburton Company of Duncan, Oklahoma has appealed from the Louisiana Supreme Court urging the invalidity of the discriminatory tax and claiming the constitutional protection of three clauses, interstate commerce, equal protection and due process. This Court noted probable jurisdiction. The tax in question is the Louisiana use tax, a part of the sales and use tax law of the State of Louisiana. The tax rate is 2%. The case of the sales tax, the intrastate tax, the rate is 2% of the sales price of intrastate sales. In the case of the use tax, the interstate tax, the rate is 2% of cost price to the purchaser who imports, that is who purchases outside Louisiana and imports through channels of interstate commerce into Louisiana for its own use. Halliburton's complaint is not of the tax rate which is 2% in both cases but Halliburton does complain of discrimination in the determination of the tax basis to which the 2% rate is applied. Specifically, Halliburton complains that the tax base is larger, three times larger in the case of the intrastate use tax which falls upon Halliburton and the tax base would be in the case of the intrastate sales tax which would fall upon a local intrastate competitor of Halliburton in an identical -- in an identical intrastate business operation.
Speaker: Is that the result of the way the statute is written or is the result of the way the stat -- the statute (Voice Overlap) --
Benjamin B. Taylor, Jr.: Oh, I think there's a split of opinion on that, sir. I think that the Collector of Revenue thinks -- says that's the way the statute is written. We disagree with him on that. We think that this problem is with his interpretation of the statute.
Speaker: Your court construed it as being required by the statute.
Benjamin B. Taylor, Jr.: That's correct, sir. We disagree with -- we don't think the statute needed to be construed that way but in any event it has been construed that way so we are faced with that as a jurisprudence of Louisiana unless this Court reverses this Court -- the Supreme Court of Louisiana. What are the facts of this case?
Potter Stewart: We can't reverse the Supreme Court of Louisiana on its construction of the Louisiana statute. We're -- we take -- we had to take that (Voice Overlap) --
Benjamin B. Taylor, Jr.: But you can.
Potter Stewart: -- it starts with the statute just as though that's what the statute explicitly and unambiguously said.
Benjamin B. Taylor, Jr.: What we're asking this Court to say that the statute has construed --
Potter Stewart: Yes.
Benjamin B. Taylor, Jr.: -- violates the Constitution of United States.
Potter Stewart: Yes.
Benjamin B. Taylor, Jr.: The facts of this case, Halliburton is a manufacturer, please let me emphasize that because opposing counsel is going to try to lose sight of that fact. Halliburton is manufacturer. It is a manufacturer which uses its own work product. And economists would classify it as a manufacturer-user or producer consumer. Halliburton is not engaged in buying or selling its product so as to give rise to the intrastate sales tax. Note particularly that Halliburton does not buy this finished product anywhere but Halliburton is a manufacturer which manufactures a product for its own use. Halliburton does not buy this finished product anywhere. Halliburton imports into Louisiana certain equipment which it has manufactured in its own production shops in Oklahoma and it uses this equipment in Louisiana. Thus, Halliburton --
Arthur J. Goldberg: You said that Halliburton is a manufacturer, I'm looking at the picture of the equipment in the record.
Benjamin B. Taylor, Jr.: Yes, sir.
Arthur J. Goldberg: It doesn't manufacture the truck itself, does it?
Benjamin B. Taylor, Jr.: No, sir. The -- on page 16 of the record, we found it quite helped to visualize this equipment, opposite page 16 of the record, you'll see a piece of this equipment. The cost of materials that goes into that which of course would include the truck chassis sir, is roughly one-third of total cost, the cost of labor and overhead in assembling this rather intricate piece of scientific equipment which is used to service oil wells. And the labor and overhead element is $60,000. And here Your Honor, you put your finger on the essence of the case that the labor and overhead is two-thirds of cost and the cost of materials is one-third of costs. Specifically, if Halliburton had its shops in Louisiana, there would be a sales tax on the cost of materials but there would be no sales tax or use tax on the labor and shop overhead expanded in Louisiana. One of these things comes up to the Louisiana state line, the Collector hails it down and he says, “I've just audited your books Halliburton, and I see that on your books, this thing stands at $90,000. $30,000 of that is materials, $60,000 is that of labor and overhead, you're going to bring that thing into Louisiana and use it, you've got to pay me 2% of $90,000”. “Not so”, says Halliburton. “We'll pay you 2% of the $30,000 cost of materials and we won't pay you anything more”. And we say that because if we had our production shops in Louisiana, if we were a manufacturer in Louisiana instead of manufacturer in Oklahoma, we would pay a sales tax on materials, there will be no tax on labor and overhead. Intrastate labor and overhead is tax free. We respectfully submit to the State of Louisiana and to this Court that multistate or intrastate labor and overhead should be equally tax free. If in the recipe, no new ingredient is added to the recipe except the element of interstate commerce, we say that that should not affect the ultimate tax result and that is the situation here no matter how thin it is sliced. Multistate activity and interstate movement of goods cannot constitutionally generate a tax which would not exist in the absence of that. If Halliburton had it's -- suppose Halliburton had a shop right on the Louisiana-Texas line and suppose -- let's put Loui -- Halliburton just outside the Louisiana-Texas line over in Texas. Let's put a competitive Halliburton right jump against the line on the -- in the Louisiana side. Let's put a one inch wide whitewash fence line between them by the ones that the competitor -- to producers in Louisiana and uses itself, there will be a 2% tax on the $30,000 materials element. There would be no Louisiana tax on the labor and shop overhead but every unit produce one inch further away from the Louisiana state capital across that line in Texas assuming that Texas had no such statutes to such costs. For every one of those units that make -- moves that extra inch of difference which makes it an interstate transaction, Louisiana says, “We're going to tax that labor and overhead”. Now, the tax here sir, is in a ratio. Discrimination is in a ratio of three to one. But that's a happenstance. We're talking about tax versus no tax. Add the element of interstate commerce, taxation of labor and overhead. Eliminate that element of tax -- of interstate movement, no taxation of labor and overhead. Mr. Chief Justice Warren at the earlier argument of this case suggested the hypothet of the do-it-yourself radio parts kit. Our 14-year-old boy, I send him to a camp in South Louisiana, going through New Orleans, he saved up $50. He buys a do-it-yourself kit of radio parts. He takes it to camp. He finds that the job of sticking it together is too complex and having some extra money from some source, he hires the more sophisticated boy in the next tent to put it together and he pays him a $150 for labor to put that together. He brings it home. He hasn't been out of the state. He's got a finished radio, $50 in materials, $100 in labor, $150 total cost. There has been a Louisiana sales tax on the materials, no sales or use tax on the labor and overhead. Change the facts. Inject one new ingredient only enabling interstate commerce that they sent him camp on the Maryland coast. On a route through Washington, he goes to (Inaudible) and he buys the same kit radio parts. He takes them to the camp on the Maryland coast. Again, it's too complex a job for him. He can't put them together. Again, there's a more clever boy in the next tent. That $100 he had to put the radio kit or parts together. Now, he's got a $150 radio, the same radio, the same $50 in materials, the same $100 in labor and overhead. Through channels of interstate commerce, he takes that finished radio back to the State of Louisiana. The State of Louisiana would put a tax on a $150. It would include the labor and overhead because of the interstate movement whereas it excluded it where there was no interstate movement. The Sabine River is a small stream running between Louisiana and Texas. Suppose that I go to Sears Roebuck in New Orleans. For $500 I buy a kit of radio -- boat parts. I'm going to be build a 16-foot boat. $500 I buy the kit or parts, do-it-yourself. I take them to the Sabine River and on a sandbank on the Louisiana side, I'll hire a workman for $1000 to stick those parts together. I've got a finished boat, cost me a $150 -- $1500, I beg your pardon, $500 materials, $1000 labor and overhead. There's been a Louisiana tax on the materials cost only, none on the labor and overhead. But suppose there's no sandbank on the Louisiana side and suppose I take those same parts, $500 worth of materials to the Texas side of this narrow stream. There, I hire a workman for $1000 to stick them together for me. When he finishes, I've got a $1500 boat, $500 materials, $1000 labor and overhead. Now, note the instance that taxation is going to fall on my next step. What is my next step? I float it across the stream and upon the floating of that thing across the imperceptible line which is the boundary line of the states, the Collector of Louisiana would fix the instance of a tax. He would tax $1500 there instead of $500 because there has been interstate movement.
Hugo L. Black: If you are right, does it mean -- I'm trying to find out to what the -- does it mean that the states cannot apply their use tax to any equipment brought in the state purchased from an out of the state manufacturer or distributor insofar as the value is -- represents labor in another state?
Benjamin B. Taylor, Jr.: No, sir. For this reason and Your Honor has put his finger on the most confusing aspect of this case and upon the contention upon which the Louisiana Supreme Court stumble in its reasoning. If you have -- if Halliburton were a multistate operator which purchased this equipment outside the state and then moved into Louisiana, its tax would be exactly to that same -- the same as it would be if it were an intrastate purchaser who purchased the equipment and then went ahead and used it. In each case, where there has been a purchase with or without the element of interstate commerce end, the tax would fall on the purchase price or cost price which would include three elements, A -- (1) rather, materials, (2) labor and overhead and (3), the cost -- the profit of the producer or distributor. Now, let's -- Halliburton purchased in Oklahoma and brought it into Louisiana, the tax would be on the purchase price. If it purchased it in Louisiana, the tax would be on the purchase price, there would be no differential. On the other hand, and this is what I -- if I can't lay anything else to rest here today, I want to lay to address the proposition that you -- that they have collected -- I want to assert clearly that the Collector is trying to compare two different economic operations. Guess what he says? Isn't the use tax, and this is going be his argument, the use tax here if levied upon Halliburton's total cost including labor and overhead merely the same as and no greater than the sales tax that would fall upon an intrastate, intra-Louisiana operator who buys such equipment in Louisiana. And the answer to that question necessarily is yes. But we respectfully submit that it is totally beside the point.
Arthur J. Goldberg: Mr. Taylor, you are drawing a distinction between a purchaser who is not a manufacturer and a manufacturer?
Benjamin B. Taylor, Jr.: That is right.
Arthur J. Goldberg: And I take it, your argument is that in each case, you would seek equality of tax treatment.
Benjamin B. Taylor, Jr.: That's correct, sir.
Arthur J. Goldberg: And there has not been equality here.
Benjamin B. Taylor, Jr.: It stipulated that we don't have it, sir. The stipulation specifically and I quote it --
Hugo L. Black: What effect would this have on General Motors and Ford's sales of automobiles?
Benjamin B. Taylor, Jr.: It would have no effect upon sales of automobiles. It would apply in a particular case which might rarely occur if General Motors brought to Louisiana as General Motors and used as General Motors a company car. In other words, this applies --
Hugo L. Black: Are you then --
Benjamin B. Taylor, Jr.: -- only to a manufacturer using its own product after having brought it across state line.
Hugo L. Black: They do that to some extent, do they?
Benjamin B. Taylor, Jr.: That's right, sir. And this would -- the argument there would be that if General Motors will say as a Ford automobile has got a $1000 of materials and $2000 of labor over -- and overhead. And if they brought that into Louisiana, we assert that Louisiana should not tax General Motors any more than if it had its manufacturing shops in Louisiana. Halliburton -- the Collector makes a really incredible argument which I want to quote to this Court. Suppose I go back just a little if Your Honor would permit me to. It's stipulated in this case that an intrastate production shop owner, that is Halliburton if it had its shops in Louisiana would not be either sales tax or use tax on this labor and overhead which is two-thirds of its cost. Such an intrastate manufacturer use them would be a sales tax of 2% on the materials it buys, cost element number one, but co -- but the intrastate manufacturer-user would not be a 2% tax sales or use on purely intrastate labor and overhead which we've called cost element number two which is consumed in assembling materials into a usable finished product. It is stipulated. Louisiana does not levy a sales tax or use tax on intrastate labor and overhead. And we quote that stipulation which appears in the record at page 26, “If Halliburton had operated at a location within the State of Louisiana, there would've been no Louisiana sales tax or use tax due upon the labor and overhead, and as -- our position is simply this, that the additional element of interstate commerce cannot constitutionally generate a new burden for Halliburton which would not exist in the absence of interstate commerce. Now, it's a fact that Halliburton has already paid to Louisiana a 2% use tax on the cost of materials, element number one. In other words, Halliburton has already paid to the State of Louisiana all of the tax that a competing intrastate manufacturer-user would be required to pay and that's stipulated. The remaining question is whether Louisiana may require Halliburton to pay a 2% use tax on the labor and overhead cost when incurred in Oklahoma which you would not be required to pay if Louisiana had incurred, if Halliburton had incurred the same labor and overhead cost in Louisiana. We stated, may Louisiana include in the tax base of the multistate or interstate manufacturer-user a substantial element of cost, two-thirds or about a million and half dollars in this case while at the same time Louisiana excludes that same substantial element of cost, two-thirds from the tax base of the competing intrastate manufacturer-user.
Speaker: How long has this statute in the books?
Benjamin B. Taylor, Jr.: All of my materials are, sir. Now, this issue has been under discussion in one form or another in my memory for at least 15 years. This is the first time it's coming to litigation. Actually, --
Hugo L. Black: (Voice Overlap)
Benjamin B. Taylor, Jr.: -- if you put -- if you press me sir, I believe that the use tax came into effect in the mid-30s but I would be uncertain to that and I don't think there's many substantial changes --
Speaker: This is the first time the statute has been construed on this point?
Benjamin B. Taylor, Jr.: That is correct, sir. Actually, you -- my interest to the court is to why this issue hasn't reached this Court before. And the answer is that every time the issues caught up anywhere has been resolved in favor of the taxpayer. In Oklahoma and California, the statute has been construed. These cases in our briefs had been construed to eliminate from the tax base of the use tax, any element which was eliminated from the tax base of the interstate -- intrastate sales tax.
William J. Brennan, Jr.: But in the case -- the statute has been enforced during the mid-30s?
Benjamin B. Taylor, Jr.: That's right, sir. That --
William J. Brennan, Jr.: Taxes have been paid?
Benjamin B. Taylor, Jr.: My experience frankly is limited to this case which has been in argument since about 1955. We refuse to pay it. I really don't know how --
William J. Brennan, Jr.: I understand.
Benjamin B. Taylor, Jr.: I don't have knowledge of -- perhaps they -- the Collector may have been yielding on the point before perhaps the tax base --
William J. Brennan, Jr.: You pay it prior to 1955?
Benjamin B. Taylor, Jr.: Sir?
William J. Brennan, Jr.: Did you pay it prior to 1955?
Benjamin B. Taylor, Jr.: I think we paid it in 1956, sir. They -- one of the fascinating things -- have I answered your question sir?
William J. Brennan, Jr.: Well, I said prior, but 1956 is over.
Benjamin B. Taylor, Jr.: I believe that's correct.
Hugo L. Black: What about the other states?
Benjamin B. Taylor, Jr.: The issue has arisen once before in Alabama. This case has another facet which we -- we've been talking about the labor and overhead phase. Now, let me slip over very briefly into another phase --
Hugo L. Black: Well, I meant to ask you, does -- how many states have the same kind of tax law, use tax law that Louisiana has here?
Benjamin B. Taylor, Jr.: 37 states have sales and use taxes and they account for about 20% of the combined revenue of all states. Now, it's my observation that this -- that the tax drafters of these statutes have tended to copy from each other. Now, how many of them are exactly like this, I can't say.
Hugo L. Black: Are there any of them that have held on your side on this question?
Benjamin B. Taylor, Jr.: Every time the issue has ever arisen --
Hugo L. Black: I meant --
Benjamin B. Taylor, Jr.: -- it has been held the way we are contending for.
Hugo L. Black: How many? Is it in your brief?
Benjamin B. Taylor, Jr.: Yes, sir but I can give it to you. I have it right here. I can -- Alabama is the only state where it's been litigated. In Ohio and California and then Oklahoma, it's been administrated -- administratively determined. Oklahoma had a -- in three states including Ohio and I can't --
Hugo L. Black: It's a fair statement, isn't it, that you've raised a noble point in this law where it's been enforced the other way generally throughout the country?
Benjamin B. Taylor, Jr.: No, sir. With much respect --
Hugo L. Black: It's not.
Benjamin B. Taylor, Jr.: -- I think to the contrary. In North Dakota, Ohio, and California, it's been administratively ruled. This appears in our -- page 46 of our brief that wherever the labor -- that the labor and shop overhead must be excluded from the use tax since it is excluded from the sales tax. And they point to the constitutional necessity for so holding. Now, the State of Alabama specifically had these questions squarely in litigation and the Supreme Court of Alabama held exactly almost in words of one syllable as we are contending that the court should hold today. The -- in Alabama, the issue dealt with what we called the isolated sales exemption in the use tax. If I were to sell this necktie in Louisiana, since I am not regularly engaged in the business of selling neckties, there is no sales tax on that transaction. There is an exemption of isolated sales. But the Collector of Revenue says that there is no -- and this is the Alabama case, I'm coming to your point but I think its much better illustrated with this if you please, sir. They had barges in the Alabama case instead of a necktie but I think this gets the point more rapidly. If I were to sell this to opposing counsel, if I had sold it to him in Louisiana, and then he brought it up here and taking it back to Louisiana, there would be no sales tax on the transaction because the operative facts, my sale of it to him took place within Louisiana's barge. But if, I should initiate that transaction right here today, if I should take it off and sell it to him for a dollar, and if he took that thing back into Louisiana so that the sale took place here, and the use took place in Louisiana, then Louisiana would demand a 2% use tax on that because they say that there is no such thing as an isolated use. Specifically, in the Halliburton case, Halliburton bought an airplane in New York from a newspaper company that wasn't in the business of selling such things. They had bought some used equipment from a company in Texas that was not regularly engaged in the business of selling such equipment and they brought them into Louisiana. And Louisiana said, “Because you've moved these things in interstate commerce, because you went outside the Louisiana marketplace to get these things instead of getting in Louisiana, we want you to pay a 2% use tax”. With reference to the airplane, if they -- that airplane have been flown by the vendor, not by Halliburton into the Morrison Airport in New Orleans and if there, it had been purchased by Halliburton, then there would've been no Louisiana sales tax on the transaction. But if Halliburton goes outside the state and gets that piece of equipment and then flies it in, Louisiana would place a tax upon it.
Arthur J. Goldberg: Mr. Taylor, in answer to Justice Black's question, you're dealing with something else other than what he inquired about? Aren't you dealing with the isolated sale aspect of your case? What about the overhead aspect? Are there states on the overhead, the labor and overhead aspect that had taken a position contrary to the position you're asserting here?
Benjamin B. Taylor, Jr.: No, sir. I know of no holding anywhere nor any published writing anywhere that supports the Louisiana Collector except one article in the Louisiana Law Review by one Robert Roland who if the Court should find that, I call this attention that Mr. Robert Roland was the attorney, was the Louisiana Collector himself at the time that this thing was done. In another article in the Louisiana Law Review where the Law Review is taking the point different from Mr. Roland, we are supporting it. The only written word in print that supports us is Mr. Roland's proposition. This issue and one thing I must have the Court here is an incredible argument of the Louisiana Collector in his motion to dismiss. It's a fascination to see what he says.Louisiana Collector says that for Halliburton this is and we quote from the motion to dismiss at page 13, “Not an interstate problem, not an interstate commerce problem but a problem in management in locating its operations so as to reduce its cost of operations”. The taxpayer says, the Louisiana Collector may reduce his tax burden by manufacturing equipment within Louisiana for his own use. Collector's argument is incredible. He contends that Louisiana's position that non -- it is nondiscriminatory simultaneously he argues it by a good corporate management, Halliburton could avoid this Louisiana tax by ceasing its interstate movement and becoming a purely intrastate operator having its entire operation within Louisiana's borders. We've discussed this point in our brief at some length under the heading, a problem of management, save Louisiana taxes by manufacturing in Louisiana.
William J. Brennan, Jr.: May I ask --
Arthur J. Goldberg: May I ask you this question?
Benjamin B. Taylor, Jr.: Yes, sir.
Arthur J. Goldberg: In -- to take this General Motors illustration that have been put to you, suppose that Chevrolet that General Motors manufactures assembles and sends them to Louisiana, Chevrolet sell it for $3000. If it is sold, that Chevrolet is sold in Louisiana, a sales tax would have to be paid on $3000 --
Benjamin B. Taylor, Jr.: Correct.
Arthur J. Goldberg: Is that correct?
Benjamin B. Taylor, Jr.: That's correct.
Arthur J. Goldberg: If the Chevrolet is assembled in Louisiana, if the General Motors has an assembly plant and if the materials that go into that Chevrolet cost $1500 and the labor is $1500. As I understand you, you would say that under Louisiana law it would be taxable under the sales tax law for $1500.
Benjamin B. Taylor, Jr.: That's correct.
Arthur J. Goldberg: Is that correct?
Benjamin B. Taylor, Jr.: That is true.
Arthur J. Goldberg: And you are then arguing that if the Chevrolet is assembled in Detroit and $1500 are materials and $1500 are labor, and the Chevrolet is shipped into Louisiana for use by Chevrolet --
Benjamin B. Taylor, Jr.: Right.
Arthur J. Goldberg: -- as company car --
Benjamin B. Taylor, Jr.: That's correct.
Arthur J. Goldberg: Is that what you mentioned --
Benjamin B. Taylor, Jr.: That's correct.
Arthur J. Goldberg: -- that it ought to be only taxed for $1500 as a company car?
Benjamin B. Taylor, Jr.: That's correct.
Arthur J. Goldberg: Is that correct?
Benjamin B. Taylor, Jr.: Because otherwise there's a 2% tax inducement by the State of Louisiana to coax the manufacturer into the State of Louisiana and that's what we think that the federal constitution forbids. This issue --
William J. Brennan, Jr.: May I ask --
Benjamin B. Taylor, Jr.: Yes, sir.
William J. Brennan, Jr.: -- just this, did you say earlier there is an Oklahoma tax comparable to this?
Benjamin B. Taylor, Jr.: Yes, sir.
William J. Brennan, Jr.: Did you pay it?
Benjamin B. Taylor, Jr.: Oh, oh no, sir. There was no tax paid in the State of Oklahoma because there's an exception of goods produced by export.
William J. Brennan, Jr.: I see. But if it had -- as I understand it, if Oklahoma had taxed you, you would've been entitled to a credit --
Benjamin B. Taylor, Jr.: That's correct.
William J. Brennan, Jr.: -- for the amount of the Oklahoma tax, did you not?
Benjamin B. Taylor, Jr.: That's correct, sir. But note that if there'd been only a tax on the materials in Oklahoma because there was no intra-Oklahoma labor and overhead tax, then when they came to the State of Louisiana, they could claim a credit only for the --
William J. Brennan, Jr.: Yes.
Benjamin B. Taylor, Jr.: -- materials tax that had been paid and Louisiana again would flag them down and say, “Give us the tax on this labor and overhead because you've got them multistate operation”. The use tax falls only on goods that had been moved interstate commerce. Henneford versus Silas Mason, 1936 before this Court, the use tax was attacked on the grounds that it would be offensive to the interstate Commerce Clause because it only falls upon situations where there's been an interstate movement. The use tax is upheld in that case despite the fact that the use tax only falls upon transactions involving in interstate commerce because in a case then at bar, Silas Mason, the use tax of the State of Washington did not exceed the sales tax of the same state but was merely complimentary to and precisely equal to the sales tax of the same state therefore there was no discrimination, hence no unconstitutionality. And Mr. Justice Cardozo made it plain that that was his rationale with this language. Equality, he says, is a theme that runs through all sections of the Washington statute. When the account is made up, to stretch him afar is subject to no greater burdens than the dweller within the gates. In each situation, the burden of the use tax is balanced by an equal burden of the sales tax where the sale is strictly lawful. And Mr. Justice Cardozo concluded a nondiscriminatory tax, a nondiscriminatory tax has never been regarded as imposing a direct burden upon the interstate commerce. Now, we respectfully submit that implicit in the Silas Mason decision and corrected so, is the proposition that whenever the use tax, the interstate tax does exceed the intrastate tax in an identical situation, not comparing a manufacturer-user, with the purchaser at retail. The purchaser at retail, intrastate versus purchaser at retail intrastate, manufacturer-user interstate versus manufacturer-user intrastate, we respectfully submit that the additional ingredient of interstate commerce cannot constitutionally create a tax where it non-existed in its absence. Thank you.
Earl Warren: Mr. Sanford.
Chapman L. Sanford: May it please the Court. I think that we can show that Louisiana hasn't done quite as bear as Mr. Taylor would have the quote I believe, I think that the theme of our law is equality and it is certainly is a definite attempt to equalize all the interest. And of course he says that we attempt to compare incomparables and we say that he has. In this case, it's true that a manufacturer-user in Louisiana would pay a tax only on the items that they themselves either purchased in Louisiana, they'd pay the 2% sales tax. This is what they use in Louisiana. If they purchased it outside of Louisiana, in this case, knots and bolts and sheet metal and the chassis and maybe a motor, what they bring in to Louisiana and that the item that they used as of the time they bring it in and becomes part of the mass of property that is out of commerce, then that is what is taxed. And that is the moment of taxation. In this case, they bring in a completed item and that is what they use in Louisiana. And a manufacturer-user such as Halliburton in Louisiana whose manufacturing trucks for use all over the world would pay the tax on all of the knots and bolts, on all of the sheet metal, on all of the chassis and of all the motors no matter where it went. And if management found that they could afford to pay the tax on all of the items that they did use, and produced in Louisiana more cheaply rather than pay them the item that they did bring to Louisiana, well then, certainly, it is a management problem of location. It isn't even a loophole in taxation. Because they're being taxed as of the taxable moment on what they do use in Louisiana and we do not tax overhead. And we do not tax labor. We tax value or cost. We tax the cost in the sales tax. We tax the cost in the use tax. It's true that the labor and shop overhead in this case formed the part of the value or cost of the item. But Louisiana is not taxing labor and shop overhead. We are taxing what has been brought into Louisiana and what is being used in Louisiana. And as of that time, which is the only time that Louisiana gets jurisdiction incidentally, at least the first moment that they get jurisdiction. It is of that time we look and say, “What do you have here? And what does this cost to you?”
Speaker: Suppose (Inaudible) to the sales tax in your -- that fell on the seller or is it --
Chapman L. Sanford: It falls on the purchaser. In other words --
Speaker: The purch --
Chapman L. Sanford: -- the one that's going to use it just as it does in the use tax on the one that is going to use it. The moment of taxation in both cases is identical is a moment that a user or consumer takes the property and is ready for using it. And as of that moment, that's the moment of taxation in both cases, the rate is the same and the base is the same because it is the cost of the item as of that moment. Now, in this case, -- well, really what they're complaining about almost is the -- is that it's a cheaper tax when you prove that you eat home than it is when you eat out. But the situation is a diff -- different because in this case when you eat home, you buy a large quantity of food and you pay tax on all of it. It's true that per meal maybe the tax is different. But if you come through Louisiana and you stop and you buy meal at the restaurant, you buy your steak and you pay $4, you pay 2% on it. If you ate that same steak at home, well, it will be whatever the cost was in the store but you're going to -- you pay on all of your groceries no matter where you eat them, no matter -- whether you eat it or not. In other words, if they're spoiled, you would still have paid your tax at the moment that you purchased it.
Hugo L. Black: Do you raise your own steak?
Chapman L. Sanford: Sir?
Hugo L. Black: Do you raise your own steak that some of it comes from outside or has a little labor put on it?
Chapman L. Sanford: Well, some of it, most of it comes from outside. We raise it alive, Your Honor.
Arthur J. Goldberg: Counsel, take this -- the Chevrolet illustration I used earlier, if an automobile is manufactured in Louisiana and sold Chevrolet, where is the -- at what point does the sales tax attached?
Chapman L. Sanford: When it is sold to the ultimate consumer or the user.
Arthur J. Goldberg: From the distributor to the ultimate consumer?
Chapman L. Sanford: Yes, sir.
Arthur J. Goldberg: Not at the manufacturer level --
Chapman L. Sanford: No, sir.
Arthur J. Goldberg: -- to the distributor?
Chapman L. Sanford: No, sir.
Arthur J. Goldberg: Is that correct?
Chapman L. Sanford: That's correct and the interest here or more than just the interest that which points up to this.
Hugo L. Black: Suppose Halliburton were to sell this machine as you propose the use tax, would you have to pay a sales tax?
Chapman L. Sanford: We have to collect the sales the tax.
Hugo L. Black: You will collect --
Chapman L. Sanford: If you're in the business of selling them.
Hugo L. Black: But suppose he decided to sell this one later.
Chapman L. Sanford: Well, we have an exemption, Your Honor, for a casual sale, that would probably (Voice Overlap) --
Hugo L. Black: That should be a casual sale?
Chapman L. Sanford: And there would be no tax.
Earl Warren: Mr. Sanford, would you please take the hypothetical case of Mr. Taylor about the boats that are built, one of them on one side of the little narrow stream that divides the two states and the other built just on the other side of the stream and in one instance as he says, your tax is only on the materials but if he ships the boat -- the other boat across the river then it becomes liable for both the value of the materials plus the cost of labor and overhead. Would you give your theory please as to why that is not -- would not be a burden on interstate commerce.
Chapman L. Sanford: In his particular hypothet Your Honor, I believe that he had -- he said he hired someone to do the work, in which case that is a taxable service in Louisiana or make anymore like this particular one, if he does the work --
Earl Warren: Well, what was that, I didn't quite understand that?
Chapman L. Sanford: In his hypothet, he said that on the Louisiana side, he had someone do the work for him.
Earl Warren: Yes.
Chapman L. Sanford: And this is a taxable service.
Earl Warren: He had it on both sides? Did someone do it --
Chapman L. Sanford: Well, and this is a tax ---- on both sides?
Chapman L. Sanford: This would be a taxable service in Louisiana and it would bear the tax.
Earl Warren: What tax would it bear? Would it bear the same kind of tax as this?
Chapman L. Sanford: A 2% tax.
Earl Warren: On all --
Chapman L. Sanford: On the service.
Earl Warren: (Voice Overlap)
Chapman L. Sanford: Yes, sir. As a part of the same sec --
Earl Warren: What kind of a --
Chapman L. Sanford: -- part of the same section that levies that tax.
Earl Warren: He got to pay a road tax?
Chapman L. Sanford: No. It's akin to the sales tax. In fact, it's contained in the same section that contains the sales tax. And it says there's a -- is hereby levied a tax upon all sales or services as here in defining the state at the rate of 2% on the amounts paid or charged for said service. Indeed, this particular service has to do with manufacture. And it is a 2% tax on that.
Earl Warren: Well then, if this material that we're discussing in this particular case were manufactured in Louisiana, would he have been obliged? Would Halliburton have been obliged to pay a 2% tax on all the material -- on all the labor and overhead?
Chapman L. Sanford: Not under the particular facts of his case. They would not pay -- that overhead would not be included in the tax base.
Earl Warren: With the labor?
Chapman L. Sanford: No, sir.
Earl Warren: Well, then --
Chapman L. Sanford: Well, there's a --
Earl Warren: Would it (Voice Overlap) --
Chapman L. Sanford: There's a difference in his hypothet and the facts of his case about the boat.
Earl Warren: Well, how about -- what's the difference between the boat in this case?
Chapman L. Sanford: In the boat, he has someone else to the -- do the work. In this case, he does it himself.
Earl Warren: Well, he employs -- he employs --
Chapman L. Sanford: Well --
Earl Warren: -- people to do it for him. He pays for the labor. And that is only --
Chapman L. Sanford: Well, I --
Earl Warren: -- whether he employs labor to build this big truck.
Chapman L. Sanford: He -- if he were himself doing it with his own labor (Voice Overlap) --
Earl Warren: No, I'm talking about that. I'm talking about where he employs labor and employs people for overhead. Would he have -- would there be any such tax (Voice Overlap) --
Chapman L. Sanford: There would be no tax on the labor or the overhead.
Earl Warren: Well --
Chapman L. Sanford: Nor would it being -- nor would it be included in the value of the item. As a matter of fact, what it amounts to as I point out is taking the component parts of say your meal and fixing it yourself, you pay tax on what you buy at the time you buy it or what you bring in and use at the time that you do that. Now, if he should ruin for example what he has brought in, his tax would not be refunded in any way. If he is doing it in Louisiana, he pays on all of that he's using. And in this case, I'm sure that he doesn't use 10% of his trucks in Louisiana, if he would pay on all the material which he used in Louisiana, the situations are different.
Earl Warren: But Mr. Sanford, let's get back to the -- to his boat, the boat situation. If it was built on the Louisiana side, there would be no tax on either the labor or materials, would there?
Chapman L. Sanford: No, sir.
Earl Warren: Now, if he shoved his boat across the river as he suggested, would your Collector charge him or assess him a tax on his labor and materials, I mean on his labor and overhead?
Chapman L. Sanford: Well, no sir. We do not charge tax on the labor and overhead but we do take the value of the item, and in this case, it is -- since there is no market for this, for this particular item, we compute the cost by including labor and overhead.
Earl Warren: Why don't you do it in Louisiana?
Chapman L. Sanford: Because of the time that the tax is imposed, the taxable moment, this is -- the ultimate item is not what they -- when -- is not what they first take. At the taxable moment, what they first take is the component parts. And he doesn't bring income. He wants to be taxed as if what he brought in were component parts but he does not. He brings in a highly refined piece of machinery. And that's the reason we don't. Oh, it is not -- we're not taxing the truck. At the time of the use, it is not a truck. At the time of the use, what he has is sheet metal and the component parts. And that is what we tax at the time of the use. Now, he ends up, it's true. He would end up with a highly refined piece of machinery but it -- after the tax has already been imposed upon the component parts and in this case, under the stipulation in this case, we would not tax that, at least at -- the component -- the ultimate item in this particular case would of course be -- have a far greater value than the component parts.
Earl Warren: Well, just so, would it, if it was manufactured in Louisiana?
Chapman L. Sanford: That's correct.
Earl Warren: Oh, isn't it a burden on interstate commerce if you put the incidents of -- if you have two articles, one in Louisiana and one in another state that are constructed in exactly the same way and in the same kind of commerce if you put the incidents of the tax at one point.
Chapman L. Sanford: No, sir, because --
Earl Warren: Louisiana and another point, if it comes from the outside, and you burden -- and you make the tax excess if it's the outside or wouldn't that be a burden on commerce?
Chapman L. Sanford: No, sir. Not in the -- in this particular case, this -- if it -- if you want to term it a discrimination or difference in taxation, it doesn't bear solely on interstate commerce. It bears against everyone who's paid a sales tax on a like item. Or was -- everyone who had purchased either within the state or without the state and paid the sales tax would be in the same if it's a disadvantage, would be at the same disadvantage to the person who creates his own ultimate product. The -- if there's a discrimination, it's not just against interstate commerce, it's against the instate purchaser as well as the out-of-state purchaser or the out of -- or the one who brings in the item in its completed state.
Earl Warren: But he is willing to pay you the tax -- pay you the tax on the materials in exactly the way that you tax your own people?
Chapman L. Sanford: Well, that's not exactly the way we tax our own people. My point is that the situations are not identical. We would tax our own people on perhaps 10 times as much component parts as used in the thing. We would tax them on all of these component parts. If he would be willing to pay the 2% tax on every component part used in his factory in Duncan, Oklahoma which is the way we were taxing if he were in Louisiana, we'd be happy to accept it. But he doesn't want to be taxed.
Earl Warren: You mean -- you mean if he makes a hundred trucks in (Voice Overlap) --
Chapman L. Sanford: And uses one in Louisiana --
Earl Warren: (Voice Overlap) and used one in Louisiana, he ought to pay a tax on all the materials --
Chapman L. Sanford: No, I'm not saying that, Your Honor.
Earl Warren: -- to a hundred?
Chapman L. Sanford: No. I'm saying that to -- that's what he would do if he were in Louisiana. If his operation were in Louisiana and he made a hundred trucks and 99 of them went out of state, he would've paid tax on all of the component parts. That's why the situations aren't identical. He would've paid on all of the component parts not just the one in Louisiana, every one.
Tom C. Clark: (Voice Overlap) what comes in to the state as it comes in.
Chapman L. Sanford: As it comes in and this --
Tom C. Clark: One of the items comes in various little parts?
Chapman L. Sanford: Right.
Tom C. Clark: And everybody paid a tax on that. And if the instate man rode in this truck, he'd have to pay a tax too, wouldn't he --
Chapman L. Sanford: That's correct.
Tom C. Clark: -- the finished truck?
Chapman L. Sanford: Right. And in this case, if he had his plant instead of in Duncan, in Louisiana, in Shreveport for example, he would pay on every little item he brought in for all the trucks no matter where it would go.
Earl Warren: So would he, in this situation, would he not if he brought all the trucks in to Louisiana?
Chapman L. Sanford: Yes, if he did.
Byron R. White: Mr. Sanford, (Inaudible) on the privilege of using?
Chapman L. Sanford: It's a privilege, yes, sir.
Byron R. White: (Inaudible) privilege of using is on materials that have been acquired outside the state --
Chapman L. Sanford: Right.
Byron R. White: -- he would no -- in -- you have no state tax upon the privilege of using materials, generally?
Chapman L. Sanford: Well --
Byron R. White: Do you?
Chapman L. Sanford: I'm not sure Your Honor. The stipulation in this case, that's what the stipulation is to that effect that we're going. Actually, I think perhaps, may be the tax is applicable.
Byron R. White: Well, the sales tax is not a tax on the privilege of using?
Chapman L. Sanford: No, sir. But it -- the use tax seems to apply to everything. But as far as the stipulation is concerned, what you say is correct. There's no -- there is no tax on the use of stuff. But most of this stuff, most of the stuff in Louisiana, like most of the stuff in all states has come in on interstate commerce even if it's sold at retail. In other words, there is the -- its -- interstate commerce is incidental to this situation because all automobiles, all trucks -- there's no manufacturer of that kind in Louisiana. Is -- all come in and the man that sells these things at retail, he has to charge 2% of the sales price and the interest to be equated are all of the interest. In this situation, which Mr. Taylor is talking about, is not identical because he would pay on all those trucks that he manufactured whether he used it in Australia and he has them there. In South America and he has them there. He has them in every state that produces oil. In every state in which there is exploration for oil. And if he were manufacturing those trucks in Louisiana, he would've paid on all the component parts wherever they are.
Byron R. White: Mr. Sanford, (Voice Overlap) wouldn't you come out the same way if you had no sales tax at all? But --
Chapman L. Sanford: I think that we would.
Byron R. White: Not just the use tax.
Chapman L. Sanford: That's correct.
Byron R. White: If the state had no sales tax whatsoever but imposed the use tax, you would still say that this is perfectly valid tax for the state?
Chapman L. Sanford: That's correct. The question that is here is how far down the line are we going to follow the stuff that's brought in. If you bring in lumber and we say, “Okay, you're ready to use it, pay us the tax on it”, which is the way we handle it. Now, how far should we have to follow that? The man goes and he builds a boat with it. Now, do we have to come find him and say, “Oh, you made a boat out of that, we want more tax”, and so he gives us more tax. He puts his boat in the water and it sinks, and he said, “Well, wait a minute, I've made a mistake. It's no good. It's valueless”. And then do we try to still follow and say, “Here's your money back”. We take in as of the time that he gets there for use. And I say, “What do you have here? We're going to charge you tax on that?” That's when our jurisdiction comes over the item.
Arthur J. Goldberg: Mr. Sanford, may I ask you at this point, the question is not related precisely for that but to the isolated sale. Take this airplane that's involved here. Suppose that the seller, the Western Newspapers Union in New York flew the airplane into the airport, to either in New Orleans or Baton Rouge, not for use but to show it to Halliburton. And Halliburton then bought that airplane right in New Orleans. Would that be regarded to be an isolated sale under your law exempt from the sales tax?
Chapman L. Sanford: I doubt it, Your Honor. He either -- they would fly -- if they were bringing it to sell, they were probably entering the sales business or at least they were bringing in for some type of use that would make it taxable and that's our point on this.
Arthur J. Goldberg: Well, what use would be invalid? Here's a case where -- suppose Halliburton said -- read an advertisement and said, “We see you have an airplane”. West Germany is not in the business of selling airplanes and it's a company plane. “So we see you have an airplane, we're interested. Would you bring it in to the airport, we'd like to take a look at it.” And they fly it in. At that point, Halliburton looks at it and says, “We like your airplane. Okay, we buy it”. Do you interpret that to be a use in New Orleans that subjects Western to a use tax?
Chapman L. Sanford: I would -- its going to either be a use or they would've been entering the sales business, Your Honor. I'm sure that we would want to tax it now.
Arthur J. Goldberg: Sales business, generally?
Chapman L. Sanford: Well, I don't think they're general. I think the person can be in more than one business, say generally they're in the newspaper business but if they want -- if they want to get into a business of selling an airplane, they're going to go out and try to acquire purchasers. It's -- we would ordinarily tax them. Now --
Arthur J. Goldberg: Well, what is the meaning of your isolated sales provision then? And he sell -- there's a sale.
Chapman L. Sanford: I hate to give it -- we don't have the situation in it. But we would try to impose the tax either under the use tax or under the sales tax. Because the purpose of the whole thing is in our argument is for the isolated sale is that Louisiana unlike the rest of the states, grants a credit for taxes paid by the state.
Arthur J. Goldberg: But you also give an exemption for an isolated sale.
Chapman L. Sanford: Right. But an item sold in Louisiana, an isolated sale will have already been the subject of the 2% tax. Was every item or tangible personal property in the State of Louisiana would've been the subject of a 2% tax. And --
Hugo L. Black: Either use or sale?
Chapman L. Sanford: Yes, sir. And in this case, if they bring in the sale, we say, “Well, have you paid the 2% tax anywhere?” And they say, “No”. We say, “Well fine, you owe us”. But if they show what they have then we give them the credit and that establishes an equality. It's not just an equality for the vendor, it's an equality of the users, the people that in compete -- in business competition. They have the same burden and to my way of thinking, the whole thing is a completely establishing equality. Now, it's true that you -- if you can so establish your business in one state or another as to have a lesser tax burden, there's no objection to that. I don't think there's ever been an objection to it. But in this case, if Halliburton were operating there, it would have paid taxes on a lot more than they want to pay us now. And insofar as the isolated sale case, we'd give them a credit if it's borne it. Any isolated sale in the Louisiana would've been the subject of it already. Same goes for his necktie. It would've already borne the tax of Louisiana. And if he had bought it somewhere elsewhere it had borne it, all he has to show is that he had paid it and we say no tax. And so equality is established by having all tangible personal property in the hands of users having borne a 2% tax either sales or use. And that puts the vendors, we're not trying to give our vendors any kind of special advantage and they don't get it because one can go out of the state to the vendor of his choice and get credit for the tax. And we don't push anyone. Now, other states don't do that. And that's the difference of these cases that he's talking about. He says the -- Alabama does not give a credit.
Hugo L. Black: May I?
Chapman L. Sanford: And --
Hugo L. Black: If Louisiana ever tries to put any tax on the knots and bolts as separate things in a completed machine?
Chapman L. Sanford: When it's for the owner and user Your Honor. We have an exemption where for resale or for manufacture for resale.
Hugo L. Black: I'm talking about whether -- when a machine comes into the state, a completed machine --
Chapman L. Sanford: Oh!
Hugo L. Black: -- it has knots, bolts, maybe an aluminum coming from Colorado, steel coming from Alabama and all and various other places. Do you try to split it up and on your use tax, tax the knots and bolts and the material?
Chapman L. Sanford: No, sir. Of course not, they're merely forms of (Voice Overlap) --
Hugo L. Black: Well, you're trying to tax a thing that's there.
Chapman L. Sanford: The thing that is there. And that the cost of those items in this situation is what is used to determine the cost. Because that is all that is available and it's not unreasonable to use it in this case.
Earl Warren: Well, Mr. -- may I ask you, if the thing is manufactured in Louisiana, do you charge for the knots and the bolts and the various other materials that are in it or do you charge the tax on the completed article as of its value when it's ready for use?
Chapman L. Sanford: No, sir. We don't do either. We charge of the knots and bolts as they come in for use. We don't ever look at what --
Earl Warren: Yes. Well, you do put the tax on. It's a -- it's not all maybe at the same time but you do put a tax on those things but when the article is completed in Louisiana --
Chapman L. Sanford: We don't --
Earl Warren: You don't put any other tax which would include the tax on the labor and the overhead that goes in to making a completed product.
Chapman L. Sanford: No, sir. We don't look further or pass the first moment of taxation. What is done with it after it comes in Louisiana, well, we don't feel that the law require -- makes us go, keep watching to see what's become of these particular items that he used.
Speaker: (Voice Overlap)
Hugo L. Black: Do you put --
Chapman L. Sanford: It would be. As a matter of fact, it would --
Hugo L. Black: You put the tax first as I understand it on the knots and bolts when you come in there because they come in as knots and bolts.
Chapman L. Sanford: That's correct, Your Honor.
Hugo L. Black: They don't come in as completed machines.
Chapman L. Sanford: That's right.
William J. Brennan, Jr.: And I take it, these knots and bolts (Inaudible) the value is affected on both labor and overhead, isn't it?
Chapman L. Sanford: Absolutely. And the whole thing is they would have as a measure is not susceptible administration.
William J. Brennan, Jr.: As I gather with these elements is that for the Louisiana manufacturer, the instance -- in fact it's going to be used or they're going to use it of the knots and bolts that he puts together and he pays the tax on those before he puts them together onto this truck, is that it?
Chapman L. Sanford: That's correct.
William J. Brennan, Jr.: Or rather the outside manufacturer comes in with the job order complete and the value of that thing is completed when he first used it, that he was thus taxable for.
Chapman L. Sanford: Yes, sir.
William J. Brennan, Jr.: Is that it?
Chapman L. Sanford: That's correct.
Tom C. Clark: You don't deduct your labor on -- in going in to the knots and bolts, do you?
Chapman L. Sanford: No, sir. We treat that as we have treated them, the items that (Voice Overlap) --
Tom C. Clark: You don't deduct the labor when the truck comes in?
Chapman L. Sanford: No, sir. Thank you, Your Honor.