Opinion ID: 2215594
Heading Depth: 2
Heading Rank: 2

Heading: The Interstate Commerce Clause

Text: We turn now to the question of whether the airport departure tax violates the interstate commerce clause of the United States Constitution. The commerce clause provides that [t]he Congress shall have Power    [t]o regulate Commerce    among the several States   . U.S. Const., art. I, § 8. While expressed as a grant of power to Congress, it is also well established that the commerce clause of its own force protects free trade among the States ( Armco Inc. v. Hardesty, 467 U.S. 638, 642, 104 S.Ct. 2620, 2622, 81 L.Ed.2d 540, 545 (1984)) and may serve in certain circumstances as a basis for invalidating state laws that interfere with interstate commerce. This construction serve[s] the Commerce Clause's purpose of preventing a State from retreating into economic isolation or jeopardizing the welfare of the Nation as a whole, as it would do if it were free to place burdens on the flow of commerce across its borders that commerce wholly within those borders would not bear. Oklahoma Tax Comm'n v. Jefferson Lines, Inc., 514 U.S. ___, ___, 115 S.Ct. 1331, 1335, 131 L.Ed.2d 261, 268 (1995). In Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977), the Court announced a four-part test for determining the validity of a state or local tax challenged under the commerce clause. A tax challenged under the commerce clause will be sustained when the tax [1] is applied to an activity with a substantial nexus with the taxing State, [2] is fairly apportioned, [3] does not discriminate against interstate commerce, and [4] is fairly related to the services provided by the State. Complete Auto, 430 U.S. at 279, 97 S.Ct. at 1079, 51 L.Ed.2d at 331. Plaintiffs do not contend that the airport departure tax discriminates against interstate commerce, but maintain that it violates the other three requirements of the Complete Auto test. Plaintiffs first contend that the airport departure tax does not satisfy the substantial nexus requirement. Plaintiffs do not dispute that the taxed activity has a substantial nexus with the State of Illinois. However, plaintiffs insist that because the tax is imposed by the Authority rather than the State, the proper inquiry here is whether the tax applies to activity with a substantial nexus with the Authority. This court's decision in Geja's Cafe forecloses plaintiffs' argument. In Geja's Cafe, this court concluded that a nexus with the State supported the retailers' occupation tax on food and beverage sales imposed by the Authority for the same purposes as the tax at issue here. Geja's Cafe, 153 Ill.2d at 255, 180 Ill.Dec. 135, 606 N.E.2d 1212. Even considering the matter anew in light of plaintiffs' arguments, we reaffirm the analysis in Geja's Cafe. Plaintiffs rely on Sea-Land Services, Inc. v. Municipality of San Juan, 505 F.Supp. 533 (D.C.P.R.1980), where, in evaluating a commerce clause challenge to municipal license taxes on companies providing ocean transportation of goods for hire, the court examined the nexus between the taxed activity and the particular municipalities imposing the tax, rather than the Commonwealth of Puerto Rico. Sea-Land, 505 F.Supp. at 546. The court reasoned as follows: Local regulatory power may be delegated to municipalities, such as is the case herein. [Citation.] On such account, municipalities have long been recognized certain `police powers' necessary in the enforcement of local government supervision. [Citation.] Once such powers have been lawfully delegated [citation] defendants may not shield themselves behind the Commonwealth as if they were inexistent juridical entities. Sea-Land, 505 F.Supp. at 546 n. 57. We agree with the Authority that the case at bar is distinguishable. The holding in Sea-Land appears to be rooted in the fact that the municipalities were the recipients of a delegated taxing power to be exercised at the municipalities' option for the purposes of funding general local governmental operations. Without necessarily endorsing the holding in Sea-Land, we would in any event limit that holding to cases where the State's role with respect to a local tax is similarly confined to simply conferring the discretionary taxing power upon the local governmental entity that may impose the tax and that controls the revenues. That is not the case here. The Authority is a unit of local government with only those powers authorized by law. 70 ILCS 210/3 (West 1994). Unlike the municipalities in Sea-Land, the Authority does not possess any police power or otherwise exercise plenary powers of local government, and the airport departure tax does not represent an independent, discretionary exercise of a delegated taxing power. To the contrary, the tax is imposed pursuant to the express statutory directive that [b]y ordinance the Authority shall    impose an occupation tax on all persons    engaged in the business of providing ground transportation for hire. (Emphasis added.) 70 ILCS 210/13(f) (West 1994). Moreover, the disposition of funds collected under the tax is specifically governed by statute, and the Authority does not enjoy unbounded discretion in the use of the tax revenues. See 70 ILCS 210/13(g), 13.2 (West 1994). Thus, while the tax has been formally imposed by the Authority, in substance the tax is a manifestation of legislative policy formed at the State level. As such, the appropriate nexus to be examined is that between the taxed activity and the State. As noted above, there is no dispute that this nexus is substantial. We next consider plaintiffs' contention that the airport departure tax is not fairly related to the services provided by the State. In Geja's Cafe, this court observed that this requirement is satisfied if the person taxed receives `police and fire protection, the use of public roads and mass transit, and other advantages of civilized society.' Geja's Cafe, 153 Ill.2d at 256, 180 Ill.Dec. 135, 606 N.E.2d 1212, quoting Goldberg v. Sweet, 488 U.S. 252, 267, 109 S.Ct. 582, 592, 102 L.Ed.2d 607, 621 (1989). Plaintiffs and amicus argue that this rationale does not apply here because the Authority does not use the revenues from the airport departure tax to provide any such services. This argument cannot be reconciled with Geja's Cafe, since the tax revenues at issue in that case were devoted to the same purposes as the revenues from the airport departure tax. Nevertheless, plaintiffs and amicus argue that the provision of police and fire protection and other general governmental services satisfies the fair relationship requirement only when the tax at issue is a general revenue tax. As support for this argument, plaintiffs and amicus cite Commonwealth Edison Co. v. Montana, 453 U.S. 609, 101 S.Ct. 2946, 69 L.Ed.2d 884 (1981). The issue in Commonwealth Edison was whether taxpayers who paid a Montana severance tax on mineral production were entitled to challenge the tax by showing that the amount collected was not fairly related to the value of services provided by the state to the mining industry. Commonwealth Edison, 453 U.S. at 620-21, 101 S.Ct. at 2955, 69 L.Ed.2d at 896. In concluding that the Montana severance tax could not be defeated on this basis, the Court noted that the tax was a general revenue tax. The Court did so, however, to distinguish the severance tax from `user' fees or `taxes'    designed and defended as a specific charge imposed by the State for the use of state-owned or state-provided transportation or other facilities. Commonwealth Edison, 453 U.S. at 621, 101 S.Ct. at 2955, 69 L.Ed.2d at 897. The Court observed that [b]ecause such charges are purportedly assessed to reimburse the State for costs incurred in providing specific quantifiable services, we have required a showing, based on factual evidence in the record, that `the fees charged do not appear to be manifestly disproportionate to the services rendered.' Commonwealth Edison, 453 U.S. at 622 n. 12, 101 S.Ct. at 2956 n. 12, 69 L.Ed.2d at 897 n. 12, quoting Clark v. Paul Gray, Inc., 306 U.S. 583, 599, 59 S.Ct. 744, 753, 83 L.Ed. 1001, 1013 (1939). The airport departure tax is a true revenue measure rather than a user fee of the sort distinguished from the severance tax in Commonwealth Edison. The question remains whether the additional distinction between taxes generating general revenue and those imposed to fund specific governmental functions is germane to the commerce clause analysis. Outside its use of the term general revenue tax, there is little in the Court's reasoning in Commonwealth Edison to suggest that the commerce clause analysis is dependent on how revenues from particular taxes are appropriated. The Court noted that the fair relationship inquiry focuses on `whether the State has exerted its power in proper proportion to [the taxpayer's] activities within the State and to [the taxpayer's] consequent enjoyment of the opportunities and protections which the State has afforded.' Commonwealth Edison, 453 U.S. at 625, 101 S.Ct. at 2957, 69 L.Ed.2d at 899, quoting General Motors Corp. v. Washington, 377 U.S. 436, 440-41, 84 S.Ct. 1564, 1568, 12 L.Ed.2d 430, 435 (1964). In upholding the Montana severance tax, the Commonwealth Edison Court stated, When a tax is assessed in proportion to a taxpayer's activities or presence in a State, the taxpayer is shouldering its fair share of supporting the State's provision of `police and fire protection, the benefit of a trained work force, and the advantages of a civilized society.` [Citations.] Commonwealth Edison, 453 U.S. at 627, 101 S.Ct. at 2958, 69 L.Ed.2d at 900. This rationale applies with equal force whether tax revenues are collected for general governmental purposes or are earmarked for a specific public purpose as in the present case. The amounts collected under the airport departure tax contribute to the provision of governmental services by alleviating the burden of financing the McCormick Place expansion project with general revenues. Moreover, in connection with our analysis of plaintiffs' challenge under the uniformity clause, we described the economic relationship between the expansion project and the businesses subject to the tax. We find no reason to believe the commerce clause demands a stronger relationship than exists in this case. Accordingly, we hold that the fair relationship requirement is satisfied. Finally, we consider plaintiffs' argument that the airport departure tax is not fairly apportioned. The central purpose of the fair apportionment requirement is to ensure that each state taxes only its fair share of an interstate transaction. Oklahoma Tax Comm'n v. Jefferson Lines, Inc., 514 U.S. ___, ___, 115 S.Ct. 1331, 1338, 131 L.Ed.2d 261, 271 (1995); Goldberg v. Sweet, 488 U.S. 252, 260-61, 109 S.Ct. 582, 588, 102 L.Ed.2d 607, 616 (1989). The requirement that state or local taxes be fairly apportioned is necessary to avoid a situation in which businesses that operate in more than one state are taxed more heavily, just because they operate in more than one state, than businesses operating in a single state. D. Regan, The Supreme Court and State Protectionism: Making Sense of the Dormant Commerce Clause, 84 Mich.L.Rev. 1091, 1186 (1986). Courts assess the threat of malapportionment by examining whether the tax is internally consistent and, if so, whether it is also externally consistent. Jefferson Lines, 514 U.S. at ___, 115 S.Ct. at 1338, 131 L.Ed.2d at 271. In Jefferson Lines, the Court explained the internal consistency requirement as follows: Internal consistency is preserved when the imposition of a tax identical to the one in question by every other State would add no burden to interstate commerce that intrastate commerce would not also bear. This test    simply looks to the structure of the tax at issue to see whether its identical application by every State in the Union would place interstate commerce at a disadvantage as compared with commerce intrastate. A failure of internal consistency shows as a matter of law that a State is attempting to take more than its fair share of taxes from the interstate transaction, since allowing such a tax in one State would place interstate commerce at the mercy of those remaining States that might impose an identical tax. Jefferson Lines, 514 U.S. at ___, 115 S.Ct. at 1338, 131 L.Ed.2d at 271-72. If every state imposed a tax triggered by departures from airports located within the state, each departure would only result in tax liability to a single state. Accordingly, the possibility that other states might enact taxes identical to the airport departure tax does not cause a failure of internal consistency. Cf. Jefferson Lines, 514 U.S. at ___, 115 S.Ct. at 1338, 131 L.Ed.2d at 272 (Oklahoma tax on gross receipts from in-state sales of tickets for bus travel originating in Oklahoma did not violate the internal consistency requirement because [i]f every State were to impose    a tax on ticket sales within the State for travel originating there, no sale would be subject to more than one State's tax). Plaintiffs' argument is not based on the possibility of multiple taxation by other states, but is instead based on a scenario involving multiple taxation by the State of Illinois and various units of local government in Illinois. Plaintiffs contend that the State of Illinois, the City of Chicago, the County of Cook, and various special districts could all conceivably impose an airport departure tax identical to the tax at issue here. Even assuming arguendo that the sort of multiple local taxation plaintiffs describe is possible, this scenario does not demonstrate a failure of internal consistency. It is not merely the possibility of multiple taxation that causes a failure of internal consistency; the internal consistency principle is violated when there is a risk of multiple taxation which places a burden on interstate commerce that is not also borne by intrastate commerce. Jefferson Lines, 514 U.S. at ___, 115 S.Ct. at 1338, 131 L.Ed.2d at 271. The internal consistency doctrine may be viewed as a logical corollary to the proposition that the commerce clause forbids taxes that penalize taxpayers merely because they do business across state lines. W. Hellerstein, Is Internal Consistency Foolish?: Reflections On an Emerging Commerce Clause Restraint On State Taxation, 87 Mich.L.Rev. 138, 164 (1988). If the State, the City of Chicago, the County of Cook, and other units of local government all imposed taxes which, like the Authority's tax, were triggered by departures from O'Hare and Midway, the total tax burden on vehicle operators would obviously multiply. But the increased tax burden would not be a function of crossing state or even local boundaries: all of the taxes owed would become payable upon the occurrence of a single triggering eventthe departure from the airport. A vehicle operator would incur the same total tax liability to all the taxing authorities regardless of whether his destination was downtown Chicago, the suburbs or a neighbor state. In other words, under plaintiffs' scenario the taxes paid by all vehicle operators would be higher than they are now, but the tax burden would fall no more heavily on interstate commerce than on intrastate commerce. We note that the multiple taxation doctrine under the commerce clause developed in the context of commerce among states with mutually exclusive territorial jurisdiction. Cotton Petroleum Corp., 490 U.S. 163, 192, 109 S.Ct. 1698, 1716, 104 L.Ed.2d 209, 237 (1989). Multiple taxation does not offend the commerce clause when the burdensome consequence of the taxation is entirely attributable to the fact that the taxed activity physically occurs at a location where several governmental entities share jurisdiction. Cf. Cotton Petroleum Corp., 490 U.S. at 189, 109 S.Ct. at 1714, 104 L.Ed.2d at 235. Accordingly, the requirement of internal consistency is satisfied. To be fairly apportioned, a tax must also be externally consistent. As explained in Jefferson Lines: External consistency    looks not to the logical consequences of cloning, but to the economic justification for the State's claim upon the value taxed, to discover whether a State's tax reaches beyond that portion of value that is fairly attributable to economic activity within the taxing State. [Citations.] Here, the threat of real multiple taxation (though not by literally identical statutes) may indicate a State's impermissible overreaching. Jefferson Lines, 514 U.S. at ___, 115 S.Ct. at 1338, 131 L.Ed.2d at 272. We need not address the external consistency requirement in the case at bar. Both plaintiffs and amicus assert in a wholly conclusory manner that the airport departure tax is not externally consistent. However, beyond this naked conclusion, neither plaintiffs nor amicus has pursued the point with any meaningful analysis of the actual possibility of multiple taxation. The argument presented is inadequate to warrant consideration by this court. 155 Ill.2d R. 341(e)(7). Accordingly, the airport departure tax comports with the requirements of the interstate commerce clause, and the trial court properly entered judgment on the pleadings in the Authority's favor on those counts of plaintiffs' complaint challenging the tax under that provision.