Opinion ID: 1187545
Heading Depth: 1
Heading Rank: 4

Heading: Impact on Interstate Commerce.

Text: The tax is challenged as an impermissible interference with the Commerce with foreign Nations, and among the several States whose care the United States Constitution entrusts to Congress and by implication protects against the states to some extent. U.S.Const. art. I, sec. 8(3). Plaintiff phrases its commerce clause attack in three forms: by characterizing the tax as discriminatory against interstate commerce, as an impermissible burden upon it, and as unapportioned. The factual predicate for this attack is that an estimated 75 percent of automobile rentals in Multnomah County take place at the Portland International Airport, mostly by nonresidents engaged in an interstate journey, and that this incidence of the tax primarily on nonresidents was openly stated as one of the reasons for enacting it. On this issue our task is to follow in the footsteps of the United States Supreme Court, whether their track is straight or winding. During the early decades of this century, there would have been a substantial likelihood that a state tax imposed on the rental of vehicles used in the course of interstate travel or transportation would have been deemed an impermissible burden on commerce, at least when the measure of the tax reflected this use of the vehicle and entered directly into the rental cost. It might have been necessary to decide whether the tax should properly be characterized as a tax on gross receipts of the lessor, because it is the lessor who must pay the tax to the county in quarterly aggregates, or as a special sales tax formally imposed upon the lessee and only collected and remitted by the lessor. For taxes on interstate transportation or the gross receipts therefrom were repeatedly held to be beyond the authority of the states after the Case of the State Freight Tax, 82 U.S. (15 Wall.) 232, 21 L.Ed. 146 (1873), and Philadelphia & Southern Steamship Co. v. Pennsylvania, 122 U.S. 326, 7 S.Ct. 1118, 30 L.Ed. 1200 (1887). This included taxes on the receipts from the rental of railroad cars. Fargo v. Michigan, 121 U.S. 230, 7 S.Ct. 857, 30 L.Ed. 888 (1887). State taxes so measured escaped invalidation only if they could be said to be on some intrastate aspect of the enterprise or transaction, or levied in lieu of property taxes. See Lockhart, Gross Receipts Taxes on Interstate Transportation and Communication, 57 Harv.L.Rev. 40 (1943). When the Supreme Court in 1938 began a radical reexamination of this area of constitutional law, as of most others, the emphasis shifted from the formal to the economic incidence of the state's tax on interstate commerce, to the possibility that the same tax might be duplicated by another state, and to the use of apportionment formulas to avoid such duplication by allocating to the taxing state an appropriate fraction of the income earned or of the property used in interstate commerce. Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 58 S.Ct. 546, 82 L.Ed. 823 (1938); J.P. Adams Mfg. Co. v. Storen, 304 U.S. 307, 58 S.Ct. 913, 82 L.Ed. 1365 (1938); Gwin, White & Prince, Inc. v. Henneford, 305 U.S. 434, 59 S.Ct. 325, 83 L.Ed. 272 (1939); Braniff Airways v. Nebraska Bd. of Equalization, 347 U.S. 590, 74 S.Ct. 757, 98 L.Ed. 967 (1954). However, apportionment was not a feasible solution with respect to sales or use taxes levied on individual transactions, which were sustained as a tax on a localized incident not susceptible of duplication, McGoldrick v. Berwind-White Coal Mining Co., 309 U.S. 33, 60 S.Ct. 388, 84 L.Ed. 565 (1940), cf. Henneford v. Silas Mason Co., 300 U.S. 577, 57 S.Ct. 524, 81 L.Ed. 814 (1937), though a sales tax on sales to local buyers completed in another state was not. McLeod v. Dilworth Co., 322 U.S. 327, 64 S.Ct. 1023, 88 L.Ed. 1304 (1944). It was essentially on this theory of taxing a local transaction divorced from its intended and actual object that the Supreme Court of Tennessee sustained the application of that state's unapportioned sales tax to the rental of trucks used partly in interstate transportation. Central Transportation Company v. Atkins, 202 Tenn. 512, 305 S.W.2d 940 (1957). Nevertheless, the economic incidence of a tax measured by the price of the individual sale and a tax measured by the gross receipts of many sales is practically identical, and the Supreme Court precedents left a question whether the decisions sustaining unapportioned taxes on sales of goods would extend to taxes measured by receipts from interstate transportation or communication. See Lockhart, supra, at 70. Certainly decisions such as those holding stevedoring immune from state business taxes, Puget Sound Stevedoring Co. v. State Tax Comm'n, 302 U.S. 90, 58 S.Ct. 72, 82 L.Ed. 68 (1937); Joseph v. Carter & Weekes Stevedoring Co., 330 U.S. 422, 67 S.Ct. 815, 91 L.Ed. 993 (1947), continued to point the other way. On the other hand, Central Greyhound Lines, Inc. v. Mealey, 334 U.S. 653, 68 S.Ct. 1260, 92 L.Ed. 1633 (1948), held that although New York could not tax the whole receipts from bus transportation that began and ended in New York but used routes in other states, it could tax a properly apportioned part of those receipts. Thus, if the present plaintiff's rental vehicles were used in the course of interstate transportation either like stevedoring equipment and services at the beginning or end of a voyage or like a seat rented from a bus company, these decisions would at least raise doubt whether the county and the taxpayer must make some attempt to segregate a protected interstate portion of its vehicle rentals from the taxable portion, unless the price collected for each rental could be called a local sale as defendants contend. So far as plaintiff relies simply on the substantial use of its vehicles by interstate airline passengers, it might be said that in traditional terms their interstate travel has ended and that the passenger renting a car has made a new choice of intrastate transportation. There are other means of going from or to the Portland airport which could equally claim tax immunity on such an errand if plaintiff's customers can. However, Supreme Court doctrine on the subject has not stood still. In 1977, the Court sustained a tax levied by Mississippi on a motor carrier employed in picking up General Motor automobiles shipped to Jackson, Mississippi, by rail and delivering them to dealers in Mississippi. Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977). It will be noted that the taxpayer's role in interstate transportation was analogous to that claimed for the automobiles rented at the Portland airport in this case. Mississippi's tax was confusingly labeled as a `privilege [tax] for the privilege of engaging or continuing in business or doing business within this state', to be measured by `gross proceeds of sales or gross income', at a rate of five percent in the case of transportation services, although the taxpayer was also required to add the tax to the sales price and collect it along with that price. The Supreme Court referred to the tax first as a privilege tax and then as a sales tax. 430 U.S. at 274-275, 97 S.Ct. at 1077. The bulk of Justice Blackmun's opinion for the Court was devoted to overruling the doctrine of Spector Motor Service v. O'Connor, 340 U.S. 602, 71 S.Ct. 508, 95 L.Ed. 573 (1951) that a privilege tax on doing interstate commerce is void because the privilege is not one a state can grant or deny. That does not concern us, since Multnomah County did not feel the antique need to find some object like a privilege for its tax. More relevant is that Complete Auto Transit, Inc. went somewhat out of its way also to discredit the formal prohibition against direct taxes on interstate commerce pronounced in Freeman v. Hewit, 329 U.S. 249, 67 S.Ct. 274, 91 L.Ed. 265 (1946) and earlier cases, in favor of the test of actual economic effects advocated by Chief Justice Stone and Justice Rutledge in the 1940's. 430 U.S. at 279-282, 97 S.Ct. 1076. [5] In discussing the substance of that test the opinion included the element of a fair apportionment. But it did not discuss it further in relation to the case before it, perhaps because all of Complete Auto Transit's services to interstate commerce were performed within Mississippi. A year later, the Court held that Complete Auto Transit, Inc., also required overruling the decisions that had immunized stevedoring from state business taxes. Washington Rev. Dept. v. Stevedoring Assn., 435 U.S. 734, 98 S.Ct. 1388, 55 L.Ed.2d 682 (1978). The opinion, again by Justice Blackmun, once more emphatically rejected the premise that a business activity is immune from state taxation because it is an integral part of interstate transportation. Both Complete Auto Transit and the Washington stevedoring companies were assumed to be engaged in interstate commerce. The latter's argument that the commerce clause cases had shown a greater solicitude for protecting interstate movement than nonmovement objects of taxation also was rejected by citation of Complete Auto Transit, Inc. Instead of categorical distinctions between types of businesses, types of taxes and tax bases, and exact relations to the course of interstate or foreign commerce, the following repeated phrases appear to constitute the Court's present formula for the validity of state taxes under the commerce clause: It was not the purpose of the commerce clause to relieve those engaged in interstate commerce from their just share of state tax burden even though it increases the cost of doing the business. Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 254, 58 S.Ct. 546, 548, quoted in Colonial Pipeline Co. v. Traigle, 421 U.S. 100 at 108, 95 S.Ct. 1538, 44 L.Ed.2d 1 (1975), Complete Auto Transit, Inc., supra, at 430 U.S. 288, 97 S.Ct. 1076 and Washington Rev. Dept., supra, 435 U.S. at 745, 98 S.Ct. 1388. Decisions following Western Live Stock have considered not the formal language of the tax statute but rather its practical effect, and have sustained a tax against Commerce Clause challenge when the tax is applied to an activity with a substantial nexus with the taxing State, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the State. Complete Auto Transit, Inc., supra 430 U.S. at 279, 97 S.Ct. at 1079. The state's financial needs are somehow to be balanced against the burden they impose on interstate commerce, and the Commerce Clause balance tips against the tax only when it unfairly burdens commerce by exacting more than a just share from the interstate activity. Washington Rev. Dept., supra, 435 U.S. at 748, 98 S.Ct. at 1398. We may respectfully assume that the fairness of the burden and the just share exacted from the taxpayer describe the ultimate judgment of the balance rather than instructions for scrutinizing a tax under the commerce clause. Insofar as constitutional rules are in the first instance directives to state and local lawmakers, a rule to be fair or just makes a limited contribution to difficult and controversial debates over tax sources and rates. Four other phrases were recited once again in Washington Rev. Dept.: The Court repeatedly has sustained taxes that are applied to activity with substantial nexus with the State, that are fairly apportioned, that do not discriminate against interstate commerce, and that are fairly related to the services provided by the State (citing cases). 435 U.S. at 750, 98 S.Ct. at 1399. The Court then proceeded to hold that the Washington stevedores had proved no facts contradicting their obvious nexus with the state in which they functioned, nor requiring apportionment of the tax, which was levied solely on the value of the loading and unloading that occurred in Washington. Although Washington's tax rates differed by type of business, the one percent rate applied to them along with other service businesses was not shown to discriminate against interstate commerce. And [f]inally, nothing in the record suggests that the tax is not fairly related to services and protection provided by the State. 435 U.S. at 750-751, 98 S.Ct. at 1399. Of these four criteria, only two are apt to pose questions of genuine cutting force in cases like the present: Apportionment and discrimination. [6] Multnomah County's tax on vehicle rentals concededly is not apportioned. The county attempts to meet plaintiff's attack on this ground by arguing that the tax is simply based on the rental fee, however that is computed, and the decision to make the mileage traveled a part of the rental formula is not its choice but that of the parties to the transaction. We doubt that this argument suffices, if this tax otherwise is subject to the requirement of apportionment. It is true that a part of the rental may represent a flat daily fee, whether or not the car is driven even one mile, but if a portion of the total rental is collected for mileage driven in interstate travel, the county or state cannot overlook that fact. The question is whether the tax is one requiring apportionment at all. As stated earlier, in the era when the Supreme Court developed apportionment as a way to allocate the taxable income and movable or intangible assets of multistate enterprises among several taxing states, it also sustained sales and use taxes without an effort to apportion these taxes. [7] The county's second line of defense is that this is such a tax. The practical fact is that taxes on individual transactions cannot be collected from the purchasing party if the proper apportionment must be determined with respect to each transaction. In the present case, for instance, this might require that automobile rental businesses like plaintiff ask each customer to report any distance that the vehicle was driven outside Oregon, and that they keep records from which the county could check on the accuracy of such reports. However, if the purpose of apportionment is not to segregate intrastate from interstate commerce in order to immunize the latter but only to avoid taxation of the same commercial transaction by more than one state, plaintiff must show that such multiple taxation is either an actuality or a substantial likelihood. Cf. Central Railroad Co. v. Pennsylvania, 370 U.S. 607, 82 S.Ct. 1297, 8 L.Ed.2d 720 (1962) (requiring proof of tax situs of moving cars for apportionment of property taxes). Plaintiff does not tell us that any part of its vehicle rentals in Multnomah County are subject to taxation in another state, and it seems unlikely. [8] We conclude that the tax is not invalid for lack of an apportionment formula. Among the four quoted criteria, the oldest and most durable is that a state tax may not discriminate against interstate or foreign commerce. To hold that a tax is discriminatory against such commerce has long been more certainly fatal than that the tax is doubtfully fair or just toward it, for the latter adjectives involve questions of degree. The problem is to distinguish when a tax discriminates against interstate commerce and when it is merely designed to assure that `[e]ven interstate business must pay its way', as approved in Western Live Stock, 303 U.S. at 254, 58 S.Ct. at 548 and the succeeding cases cited in Complete Auto Transit, Inc., supra . If interstate commerce is to bear its just share of the state's tax burden, a tax is not unconstitutional merely because it is designed to reach persons in the course of such commerce who do not otherwise share in that tax burden. If that is a legitimate purpose, it does not become illegitimate because it is candidly expressed. A tax designed to obtain some revenue from transient visitors or activities in interstate or foreign commerce might for that reason alone have been vulnerable under the line of Supreme Court precedents, now disapproved in Complete Auto Transit, Inc. and Washington Rev. Dept., which gave such commerce a degree of free trade immunity from state taxes, see 430 U.S. at 278-279, 97 S.Ct. 1076; but it is not necessarily discriminatory. True, we are reminded that such a tailored tax requires careful scrutiny for discrimination or other forbidden effect on interstate commerce. 430 U.S. at 288, n. 15, 97 S.Ct. 1076. But discrimination implies a comparison, an objection not to some burdensome imposition as such but to differential treatment where the differentiation is constitutionally forbidden. Here the county stresses that the vehicle rental tax makes no such differentiation; it applies to all short term rentals anywhere in the county, not only at the airport, and to residents and visitors alike. [9] That might not be conclusive if the equality of treatment were merely formal and the actual incidence of the tax on local users were only episodic and trivial, but this is not the case. We think that the proportion of its incidence on residents of Multnomah County is sufficiently large to assure a local political constituency against its abuse, meeting this concern of the Supreme Court's commerce clause doctrines. [10] See, e.g., South Carolina Highway Dept. v. Barnwell Brothers, Inc., 303 U.S. 177, 184-185 fn. 2, 58 S.Ct. 510, 82 L.Ed. 734 (1938). We conclude that although the vehicle rental tax may be described as a tailored tax, it does not discriminate against interstate commerce. Accordingly, the circuit court correctly declared that plaintiff had not established a reason to invalidate Ordinance No. 122. [11] Court of Appeals' dismissal vacated; circuit court judgment affirmed. APPENDIX [] Ordinance No. 122 An Ordinance Imposing a Tax upon Motor Vehicle Rentals; Fixing Rates; Providing for Administration, Collection and Other Related Matters; Requiring Licenses; and Imposing Penalties. Multnomah County ordains as follows: Section 1. Definitions. ..... C. `Commercial establishment' means any person or other entity, any part of whose business consists of providing the use of motor vehicles for a rental fee. ..... E. `Rental fee' means the gross fee, whatever the basis of its calculation, paid to a commercial establishment by any person for the rental of a motor vehicle. Section 2. Imposition of Tax. A. A tax is hereby imposed on every person renting a motor vehicle from a commercial establishment in Multnomah County if the rental is for a period of thirty (30) days or less. A rental shall be considered as having a duration of thirty (30) days or less if the actual possession or use by the person renting the vehicle terminates not later than the end of a thirty (30) day period or if any contract governing the rental has a duration of thirty (30) days or less. B. The rate of the tax imposed by subsection A of this section shall be equal to ten percent (10%) of the gross rental fee charged by the commercial establishment for the rental. ..... Section 3. Collection of Tax. A. The tax imposed by section 2 of this ordinance shall be collected by the commercial establishment at the time it collects a rental fee. B. On or before the 30th day of January, April, July and October of each year, each commercial establishment shall remit to the Director all taxes collected during the preceding calendar quarter. The remittance shall be accompanied by a report showing (1) the amount of the gross rental fees collected by the commercial establishment during the preceding quarter; (2) the amount, if any, of said rental fees which is attributable to and identified on the records or billings of the commercial establishment as being for gasoline sales; and (3) such further information as the Director may prescribe. C. All commercial establishments shall maintain accurate records of rental fees assessed and of taxes collected, and such records shall be subject to review, inspection and audit by the Director or his designee at all reasonable times. D. In the case of motor vehicle rentals which originate in Multnomah County but for which the rental fee is collected at some other location, the commercial establishment which provided the vehicle in the county shall be responsible for remittance of the tax prescribed herein, based on the total rental fee, wherever collected. E. The amount of tax required to be collected under section 2 of this ordinance shall be a debt owed by the commercial establishment to the county until remitted under this section. Section 4. Use of Tax by County. The taxes collected under this ordinance shall be general fund revenue of the county, except that the portion of taxes attributable to gasoline sales shall be subject to the limitations on use prescribed by the Constitution and laws of Oregon. ..... Section 8. Penalties. A. In addition to any other penalties prescribed by law, any commercial establishment which fails to collect and remit all taxes collected by it or otherwise to comply with this ordinance shall be subject to a penalty equal to fifty percent (50%) of any deficiency in the taxes remitted by it, or to such lesser penalty as the Director may assess. B. The penalty imposed by subsection A of this section shall be a debt owed by the commercial establishment to the county. C. Any person who wilfully violates any provision of this ordinance shall, upon conviction, be subject to a fine of not more than $500, imprisonment in the county jail for not more than six months, or both such fine and imprisonment.