Document: 516 U.S. 325116 S.Ct. 848133 L.Ed.2d 796 FULTON CORPORATION, Petitioner,v.Janice H. FAULKNER, Secretary of Revenue North Carolina. No. 94-1239. Supreme Court the United States Argued Oct. 31, 1995. Decided Feb. 21, 1996. On Writ Certiorari to Syllabus * During period in question here, Carolina levied an "intangibles tax" on a fraction value corporate stock owned by state residents inversely proportional corporation's exposure State's income tax. Petitioner Fulton Corporation, company, filed state-court action against respondent State Revenue, seeking declaratory judgment that this tax violated Commerce Clause and refund 1990 it had paid out-of-state corporations did only part or none their business State. The trial court ruled for Secretary, but Appeals reversed. In reversing Appeals, found scheme imposed valid compensatory under Darnell v. Indiana, 226 390, 33 120, 57 L.Ed. 267. It thus rejected Fulton's contention been overruled Court's more recent decisions intangibles less burden interstate commerce than placed intrastate commerce. Held: Carolina's discriminates violation dormant Clause. Pp. __-__. (a) laws discriminating face are "virtually per se invalid." Oregon Waste Systems, Inc. Department Environmental Quality Ore., 511 ----, 114 1345, 1358, 128 2d 13, ----. However, facially discriminatory may survive scrutiny if is truly " 'compensatory tax' designed simply make bear already borne commerce." Associated Industries Mo. Lohman, 1815, 1820, 639. at issue clearly discriminatory, therefore must meet three conditions be considered tax, see Waste, supra, ---- - has failed show satisfies any requirements. (b) To first condition, identify which attempting compensate, serve some purpose otherwise impose See Maryland Louisiana, 451 725, 759, 101 2114, 2135, 68 576. claims compensates general doing service supported maintenance capital market. This Court, however, recognized danger treating revenue measures as relevant burdens purposes doctrine. Moreover, can reasonably assumed Blue Sky laws, not its provide market's upkeep. Thus, pointed no in-state activity benefit justifies levy. (c) second condition requires approximate, exceed, comparison—between size component purportedly funds market—is practical impossible. form taxation, assessed according taxpayer's use particular services, before revenues earmarked they have commingled with from other sources. Hence, cannot what proportion goes support market, whether represents greater one imposes (d) third compensating taxes fall substantially equivalent events. requirement ensure actual payers each members same class, so effect enable businesses compete footing equality. Henneford Silas Mason Co., 300 577, 524, 81 814. Evaluating met will ordinarily require analysis economic incidence respective taxes, usually unsuited judicial resolution. Here there reasons doubt incidences, while unlikely ever two outside limited confines sales enough say here such showing made. (e) Darnell, does dictate different result. That case appears evaluated rational-basis standard generally employed Equal Protection respect, along Kidd Alabama, 188 730, 23 401, 47 669, bypassed later decisions, restrictions pass strictest scrutiny. (f) courts should determine instance proper remedy complied procedural requirements statute. 338 N.C. 472, 450 S.E.2d 728, reversed remanded. SOUTER, J., delivered opinion unanimous Court. REHNQUIST, C. concurring opinion. Jasper L. Cummings, Jr., Raleigh, NC, petitioner. Charles Rothfeld, Washington, DC, respondent. Justice SOUTER 1 we decide violates We hold does. 2 fair market having "business, commercial, taxable situs" Gen.Stat. § 105-203.1 Although was stated rate quarter percent, were entitled calculate liability taking percentage deduction equal issuing subject Ibid. figure set applying apportionment formula averaging portion sales, payroll, property located 105-130.4(i). 3 corporation all within would pay 100% income, taxa ble allowed resident owners likewise 100%. Stock Carolina, hand, value. For intermediate cases, holders able look up large number determined published annually Revenue. 1990, example, appropriate IBM 95%, meaning 5% held being 95% Dept. Bond Values December p. 39. 4 Corporation company owning do out state. year, case, shares six corporations, five earned these accordingly also Food Lion, Inc., 46% result 54% App. 11. 5 year amounted $10,884. brought Rev. Stat. 1979, amended, 42 U.S.C. 1983, based sought terms statute, 105-267 (1992), attorney's fees 722, 1988. parties' cross-motions summary judgment, favor Secretary. 6 appeal, reversed, holding Corp. Justus, 110 N.C.App. 493, 430 494 (1993). saw facial discrimination shareholders forcing them higher share operating solely Id., 499, 498. Secretary's "compensating place carried 499-501, 498-499. Finally, distinguished decision 267 (1912), Indiana could foreign extent those state's property. Because regime constructed avoid double taxation values, accomplished view point. 501-04, 499-501. refused retrospective relief, elimination provision scheme. 504-505, 501-502. 7 Both parties appealed 728 (1994). Without addressing read compel conclusion N.C., 477-480, S.E.2d, 731-734, Da rnell implicitly taxation. 480-482, 734-735. reasoned, moreover, related stock, practice, 479-80, 733-34. 8 granted certiorari, 514 115 1689, 131 554 (1995), now reverse. II 9 constitutional power "[t]o regulate . among several States," Const., Art. I, 8, cl. 3, long seen limitation regulatory powers, well affirmative grant congressional authority. See, e.g., Oklahoma Tax Comm'n Jefferson Lines, 1331, 1335, 261 (1993); Gibbons Ogden, Wheat. 1, (1824) (Marshall, C.J.) (dictum). negative aspect, "prohibits protectionism—that is, 'regulatory interests burdening competitors.' 639 (1994) (quoting New Energy Co. Ind. Limbach, 486 269, 273-274, 108 1803, 1807, 100 302 (1988)). reading effectuates Framers' "preven[t] retreating into isolation jeopardizing welfare Nation whole, free flow across borders wholly bear." S.Ct., 1335. 10 evaluating Clause, "the step 'regulates evenhandedly 'incidental' effects commerce, commerce.' 1350, 13 Hughes Oklahoma, 441 322, 336, 99 1727, 1729, 60 250 (1979)). With respect element protocol summarized Complete Auto Transit, Brady, 274, 97 1076, 51 326 (1977), treats law 'tax[es] transaction incident heavily when crosses lines occurs entirely State.' Chemical Management, Hunt, 504 334, 342, 112 2009, 2014, 119 121 (1992) Armco, Hardesty, 467 638, 642, 104 2620, 2622, 540 (1984)); Boston Exchange Comm'n, 429 318, 332, n. 12, 599, 608, 50 (1977) (noting "may discriminate between transactions basis element"). 1350; Philadelphia Jersey, 437 617, 624, 98 2531, 2535-2536, 475 (1978). 11 recognized, still Industries, 1821.2 814 (1937), upheld Washington's privilege using article tangible personal statute exempted subjected greater, effectively applied goods purchased itself combined burdens. 'There demand [the] Constitution shall put statute,' said; rather, '[i]t distribute sees fit, result, taken totality, power.' 584, 527 Gregg Dyeing Query, 286 480, 52 631, 634, 76 1232 (1932)). As Cardozo explained complementary arrangement assures "[w]hen account made up, stranger afar consequence ownership dweller gates. pays upon incident, another, sum reckoning closed." U.S., 527. 12 Since Mason, our cases distilled necessary First, "a must, threshold matter, 'identif[y] [intrastate tax] compensate.' 1352 758, 576 (1981)). Second, shown roughly approximate—but exceed —the amount 1352. "Finally, events 'substantially equivalent'; sufficiently similar substance mutually exclusive 'prox[ies]' other." 643, 2623). III There A degree participates favors domestic over competitors raising tends, least, discourage plying trades practically concedes much, relies instead defense.3 issue, then, sustained compensatory. 14 said, invokes defense seeks ante, __, go without saying (1981), Louisiana's argument that, because severance natural resources extracted own soil, "first use" produced used Louisiana. "Louisiana sovereign interest compensated federally [Outer Continental Shelf] land," "[t]he comparable fashion complements tax." 2135. 15 suggests deduction, But taxing state, Louisiana teaches order justify Indeed, repeatedly "no unless substantial nexus [and] fairly services provided State." 754, 2133; 1337, (1995); 279, 1079. disagree, rather insists avail themselves access markets. 16 theory State, through wishing sell residents. escape States, says, companies markets sold. So, concludes, "rests squarely 'the settled principle way.' Brief Respondent 18 1351). 17 unconvincing, counterpart where charge increased fee disposal waste generated generators cost facilities taxes. relied primarily earning disposing "substantially events," id., 1353, spoke "[P]ermitting compensate charges included forms allow anytime entities involved happened funds." (internal quotation marks citation omitted). declined now, "to open expansive loophole carefully confined jurisprudence." Even shutting eyes loophole, unpersuaded like most regulates means ch. 78A (1994), accompanying regulations, prescribe who securities procedures followed so, privilege. 78A-28 (registration fees); Admin. Code 6.1304 (1990) (same). Absent probative evidence contrary, supplied, assume upkeep provisions, tax.4 19 If then justified imposition levy While need never linkage shared out-of-staters far too tenuous overcome risk posed recognizing twin. B 20 prong exceed—the argues relative magnitudes best reference price/earnings (P/E) ratios taxpayer firms. ratio relationship target earnings, Palgrave Dictionary Money & Finance 176 (1992). rates 7.75% .25%, respectively. Given rates, P/E 31 (7.75/.25) stockholders [other States] rarely fact paying th corporation." 733. 21 math fine, even leaving aside really example compares apples oranges. When wide range things: construction transportation network, institutions educate workforce, local police fire protection, on. justification rests many funded both corporations. after all, get little else Even, suppressed suspicion actually fees, comparison 22 comparison, course, present tell us True, inconceivable, however unlikely, exceeds magnitude, carry her demonstrating record front us. difficulty confirms unwillingness "permi[t] taxation." 8. Where involved, begin sorts quantitative assessments doctrine requires. infra, __. C 24 finally, fails analysis, equivalence sales/use combination extreme reluctance recognize new categories. "use products memory doctrine." 1353. arguments pairing waste, ibid., soil imported states, 2135-2136, manufacturing wholesaling goods. Tyler Pipe Washington 483 232, 244, 107 2810, 2818, 199 (1987); Armco 2622-2623, (1984). paired activities "sufficiently prox[ies] 25 trend, assured employing tie directly further contends "events" economically "values": assuming truth assertions, find functionally 26 By value, reached reflects targeted influence earnings price stock. true enough,5 explain away apparently (quite apart rates) obvious respects, including ostensibly taxed. Something mere base conclude (or "values") nature something flows objective equivalent-event requirement, observed effect" "must retail sellers helped equality dealers states exempt corresponding burden." 581, 526; Halliburton Oil Well Cementing Reily, 373 64, 70, 83 1201, 1204, 202 (1963) ("[E]qual treatment taxpayers similarly situated precedent out-of-state"). appear allegedly respectively differently described, as, defending therefore, incidences nominal real finding neutrality competition least possible.6 27 principle, door argument. established ultimate distribution [may] quite statutory liability," McClure, Incidence Analysis Court: An Examination Four Cases 1980 Term, Sup.Ct. Econ. 69, 72 (1982), divergence occurring i t parties, consumers. might work impact passed way offsets disincentive buying 28 problem line argument, lies frequently complexity analysis. depend elasticities supply demand, ability producers consumers substitute product structure time frame evaluated, Commonwealth Edison Montana, 453 609, 619, 2946, 2954-2955, 69 884 (1981) (determining "whether shifted consumers, complex factual inquiries about issues elasticity alternative sources supply").7 shoulder Minneapolis Star Tribune Minnesota Comm'r 460 575, 589-590, nn. 12-14, 103 1365, 1374-1375, 75 295 (1983), noting "courts poorly equipped evaluate precision various methods complexities proof always certain potential error, familiarity process taxes" (footnote unwilling "plunge morass weighing comparative comparing dissimilar events" Waste. 1353 toward explaining why seldom context taxes.8 Hellerstein, Complementary Taxes Defense Unconstitutional Discrimination, 39 Lawyer 405, 434, 197, 458 (1986) strict functional equivalents another). 29 proffer burden, reason suggestion reflected values offset exhaust investment opportunities, investors elsewhere depressing purchase shares, presumably earn return lower outlay, corporations' products. Rev., 82; Elusive Corporate Income Tax: Case, Pub. Q. 395, 401 (1981). relatively small participants national markets, reflect likely shareholder. All things equal, investor probably worked impermissible Halliburton, 72, 1205 (States hopes encouraging firms State); Dean Milk Madison, 340 349, 356, 71 295, 298-299, 95 329 (1951) (observing creation "preferential trade areas" "destructive very Clause"). 30 things, wish invest reasons, perhaps affecting shareholders. Our point, amounts clear shareholding doubts dispositive. After concept merely specific justifying achieving legitimate achieved nondiscriminatory means." met. Cf. 342-343, 2013-2015 'facial purported purpose' ") 337, 1737, IV ing leaves unconstitutional modern tests. argues, compels sustain taxed Indiana's Writing Holmes difference concerns defendants ones cases." 398, 121. arrangement, he concluded, "is consistent notwithstanding technical differences." Ibid.9 32 praised lucidity his reasoning, "wrong clearly" erred, Hart, Positivism Separation Law Morals, Harv. L.Rev. 593 (1958), exemplify customary merit. He gives explanation quoted, commenting "was decided 732, 402, 669 [ (1903) ]." 120-121. Kidd, Fourteenth Amendment emphasized latitude classification reasonable basis." 733, 402 (citations reliance indicates latter viewed despite shareholder challenged Clauses. by. continue measure protection legislation "rational basis" test, see, FCC Beach Communications, 508 307, 113 2096, 2101, 124 211 (1993), understand "justifications [to] 'strictest scrutiny.' 1350 (1979)); 342-43, 2013-2015; (1978).10 authorities longer good 1823, (holding although prior lenient challenge, "bypassed decisions"). muster save it. V 34 and, accordingly, stand. At time, impermissibly retains flexibility responding determination." McKesson Division Alcoholic Beverages Tobacco, 496 18, 39-40, 2238, 2252, (1990). McKesson, said additional victims or, provisions (notably due process), retroactively tax's former beneficiaries. combine approaches. These options available resultant during contested reflec[t] 41, 2252.11 35 choice dictated severability clause enacted 105-215. properly 105-267, ought come instance. Swanson 335 674, 680-681, 537, 541 "[f]ailure comply section bars taxes"), cert. denied, 513 662, 130 598 (1994).12 federal [in remedial determination] intertwined with, consideration obviated by, law," practice leave supreme remand. Bacchus Imports, Ltd. Dias, 468 263, 277, 3049, 3058, 82 200 (1984); 252, 2822; Williams Vermont, 472 14, 28, 105 2465, 2474, 86 (1985). here. 36 remanded proceedings inconsistent 37 ordered. 38 Chief concurring. required "consistent notwithst anding Whether satisfy Darnell's "substantial equality" I agree equivalence" event levies Ante, expressed dissent my belief test deviates articulated earlier 'equality commerce' 'measured dollars cents, legal abstractions,' 647, 2625, (1984) (1963)), argued "realistic," 648, 2626. prevailed, reconciled compensatory-tax cited opinion, join syllabus constitutes prepared Reporter Decisions convenience reader. Detroit Lumber 321, 282, 287, 499. subsequently repealed. 1995 Sess. Laws, 41. repeal retroactive effect, affect years litigation. remains justiciable controversy. Powell McCormack, 395 486, 498-500, 89 1944, 1951-1953, 491 (1969) obviation petitioner's claim injunctive relief render whole moot, damages back remained). "compensatory" "complementary" ways describing phenomenon: "complements" "compensates" imposing described "in lieu" Railway Express Agency, Virginia, 358 436, 79 411, 413, (1959); Postal Telegraph Cable Adams, 155 688, 700, 268, 271, 311 (1895). last class arguably somewhat standard. suggest "de minimis --- 1822, ("[A]ctual discrimination, wherever found, impermissible, magnitude scope bearing determinative occurred"); 760, ("We know how unequal concluding unconstitutionally discriminates"). reject speculation any, encourage take advantage deduction. further, __-__, promotion expense furthers "economic Balkanization" Dormant jurisprudence prevent. 325-326, 1730-1731, (1979); 1205, (a merchant" "encourag[e] operator become terms") skepticism regarding reinforced advance courts. accepted indicator stock's J. Weston E. Brigham, Essentials Managerial 254-257 (10th ed.1993). factors play significant role, past reaches imperfect proxy anticipated future based, willing accept correspond case. makes complementary. sometimes focused factors, 2623, today identity sufficient Other important, depending include (1) final good, (2) small, (3) prices rising falling, (4) costs enterprise increasing decreasing, (5) production mobile, (6) industry government regulation, (7) system, dominates service." 439 (1986). exception aware Hinson Lott, Wall. 148, 387 (1869). Alabama gallon liquor ground complemented noted "necessary liquors sold State," 153, rationale fundamentally concerned equalizing in-staters out-of-staters. proposition Mason. 585, 528. determining importers distillers equalize common-sense est imate Simply tools indicate complex, undermine basic Hinson. token, alter unable schemes beyond traditional So much theory; compare supra. problematic statute's failure owned, upon, noted, petitioners lacked standing raise claim. Compare, Allied Stores Ohio, Bowers, 522, 528, 437, 441-442, 480 (1959) ("[I]t [tax] classification, though violative facts conceived it"). One commentator "[b]ecause enjoy extremely broad leeway drawing purposes, normally defend 'complementary' taxpayers." Lawyer, 428. suggested 'meaningful opportunity withhold challenge validity predeprivation hearing' concerns." 1825 38, 2251, 21). asserted afforded address clause, 504, 494, 501 valid, reach question.

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