Court Opinion

ID: 9668871
Source: CourtListenerOpinion
Date Created: 2023-08-24 02:29:12.003013+00
Date Added: 2024-06-11T18:15:49.198968
License: Public Domain

ROBERTSON, Chief Justice,
dissenting.
There is a single issue in this case: Whether a statewide use tax that places a higher tax burden on out-of-state purchases than is imposed by the sales tax on sales within Missouri violates the Commerce Clause of the United States Constitution. This question becomes all the more important when one considers that the use tax imposed by Missouri is higher in half of the taxing jurisdictions than is the sales tax. Elevating the cynic’s conclusion about bureaucratic inefficiency to constitutional heights, the majority holds that the use tax scheme under scrutiny here is “close enough for government work.” I respectfully dissent.
This case comes on cross-motions for summary judgment founded on the parties’ stipulations of fact. Sales made in Missouri are subject to a statewide sales tax of 4.225%. Local taxing jurisdictions may also impose additional local sales taxes. The amount of local sales taxes imposed by local governments throughout Missouri is as high as an additional 3^5%, for a total tax of 7.725%.
Goods purchased outside of Missouri, but stored, used or consumed in Missouri are subject to a statewide use tax of 4.225%. The General Assembly, however, made no provision for offsetting local use taxes. As a result, instate sales were often subject to a higher overall sales tax than the use tax required for purchases of goods from other states. To remedy this competitive disadvantage for Missouri sellers, the legislature authorized an additional statewide use tax of 1.5%, making the aggregate use tax rate 5.725%, effective July 1, 1992.
The parties have stipulated that of the 1,573 taxing jurisdictions in Missouri, 841 (53.5%) of them have local sales taxes of less than 1.5%. Thus, in more than half of the taxing jurisdictions, the total use tax imposed on goods bought outside of Missouri is greater than the aggregate sales tax imposed on goods bought within the state. The State seeks to downplay this obvious disparity by arguing that those 841 taxing jurisdictions account for only 6.86% of the taxable sales in Missouri and only 2.76% of the sales taxes collected in the state.
The State’s use of these figures is misleading and, I respectfully submit, the majority's reliance on these figures is incorrect.
This case is an attack on the use tax; it is, therefore, irrelevant what percent of instate sales are made in those jurisdictions with local sales tax rates below 1.5%. Even if a “de minimis” exception to the Commerce Clause exists, and it does not, the relevant figure is the percentage of the total out-of-state purchases that are made by residents of these jurisdictions. Only this number would provide a true reading as to the amount of interstate commerce actually affected by the disparity between the aggregate use tax and the aggregate sales tax in more than half the state.
Unfortunately, the record provides no basis from which to calculate that number. The record does disclose, however, that approximately 26% of Missouri’s population resides in these 841 local taxing jurisdictions. The State concedes that the additional use tax is a burden on interstate *196commerce. Undaunted, the State argues that the additional use tax is not unconstitutional under the Commerce Clause because of the overall “de minimis” amount of discrimination that results in “practical operation”. This argument is tantamount to a conclusion that 53.5% of the local taxing jurisdictions, and the 26% of the state’s population that resides there, are constitutionally insignificant. I disagree.
The majority succumbs to this “close enough is good enough” theory, holding that “[wjhile in certain localities the use tax may exceed the sales tax” it is nonetheless not invalid under the Commerce Clause because it “does not discriminate against interstate commerce in purpose or practical effect.” Maj. op. at 191, 192. The majority relies exclusively on General American Tank Car Co. v. Day, 270 U.S. 367, 46 S.Ct. 234, 70 L.Ed. 635 (1926), for the proposition that the Commerce Clause does not forbid a state to tax the use of goods purchased out-of-state at a higher rate than the sale of goods instate.
In General American, Louisiana had a statewide, ad valorem tax on all property located within the state. Each parish and municipality also imposed additional, local ad valorem taxes on the same property. The state constitution, however, exempted nonresident railroads from these local property taxes. Therefore, the state passed an additional statewide ad valorem tax on all “rolling stock” located in Louisiana operated by non-domiciliary corporations. This created a situation in which non-domiciliary railroads had to choose between: (1) declaring residency in Louisiana and paying the lesser of the state-local combined ad valo-rem taxes, or (2) remaining a nonresident and paying the greater state-state combined property taxes. The parties stipulated that there were some, unspecified locales in the state where the state-local combination was less than the state-state combination. Though there was no evidence of the specific rates in any specific location, the state asserted that the statewide average local rate was equal to the additional state tax, thus making the average state-local burden the same as the state-state burden.
The taxpayer in General American challenged the additional statewide tax as unconstitutional under two theories — the Commerce Clause and the equal protection/due process clauses. It argued that the average statewide state-local burden was 4-mill less than the state-state burden and, therefore, the tax was “a thinly disguised attempt to compel nonresidents doing interstate business in Louisiana to declare a domicile in the state” in contravention of the Commerce Clause. The Court rejected the Commerce Clause challenge, stating:
[Ijt is obvious ... that the tax in question is imposed on property of nonresidents in lieu of the local tax assessed in the several parishes of the state on property of persons or corporations domiciled there, and the nonresident may either -pay the state tax assessed under [the state-state scheme] or, at his option, by becoming domiciled in a parish, pay instead of it the local taxes assessed [there].
Id. 270 U.S. at 372, 46 S.Ct. at 235. [Emphasis added.] This was the extent of the Court’s Commerce Clause analysis in General American.
The remainder of the Court’s decision in General American, including the portions upon which the majority in the present case bases its Commerce Clause holding, dealt exclusively with the taxpayers’ challenge under the equal protection/due process clauses. The Court rejected these challenges, stating:
In determining whether there is a denial of equal protection of the laws by such taxation, we must look to the fairness and reasonableness of its purposes and practical operation, rather than to minute differences between its application in practice and the application of the taxing statute or statutes to which it is complementary.
Id. 270 U.S. at 373, 46 S.Ct. at 236 (quoted at Maj. op. at 189, in Section IV, which begins on page 187 and which details the “standard to be applied for determining whether discrimination [against interstate *197commerce] exists”). [Emphasis added.] The Supreme Court, speaking in dicta, extended its equal protection holding “even assuming” that the taxpayer’s assertion of a 4-mill variance was correct:
In the absence of a purpose to discriminate disclosed by the legislation itself we are not prepared to say that a 4 mills variation in one year not shown to be a necessary and continuing result of the scheme of taxation adopted would be an unconstitutional discrimination; for in such a scheme of complementary tax statutes however fairly devised it would be impossible to provide in advance against occasional inequalities as great as that here complained of.
Id. 270 U.S. at 373-74, 46 S.Ct. at 235-36. [Emphasis added.] The Court made clear, however, that “the record does not support the appellant’s contention” of a variance. Id. 270 U.S. at 374, 46 S.Ct. at 236.
With respect, I believe General American is not controlling for at least four reasons. First, the majority relies on the due process and equal protection analysis in General American to support its conclusion that the Missouri additional use tax does not violate the Commerce Clause. The United States Supreme Court recently warned against confusing these two analy-ses.
We have sometimes stated that the “Complete Auto test, while responsive to Commerce Clause dictates, encompasses as well ... Due Process requirement[s].” Trinova Corp. v. Michigan Dept. of Treasury, 498 U.S. [358], [373], 111 S.Ct. 818, 828, 112 L.Ed.2d 884 (1991). Although such comments might suggest that every tax that passes contemporary Commerce Clause analysis is also valid under the Due Process Clause, it does not follow that the converse is as well true: a tax may be consistent with Due Process and yet unduly burden interstate commerce. See, e.g., Tyler Pipe Industries, Inc. v. Washington State Dept. of Revenue, 483 U.S. 232,107 S.Ct. 2810, 97 L.Ed.2d 199 (1987).
Quill Corp. v. North Dakota, — U.S. -, -, 112 S.Ct. 1904, 1914, 119 L.Ed.2d 91 n. 7 (1992). I believe the majority has confused Commerce Clause analysis with due proeess/equal protection analysis here.
Second, General American does not deal with a compensatory tax scheme such as the sales/use taxes in the present case. Rather, it deals with an ad valorem tax and considers how a state may tax the instate property of nonresidents where its local taxing authorities are prohibited from doing so by its own constitution.
Third, General American contains an abbreviated, and now highly suspect, Commerce Clause analysis. The Court held that the tax did not violate the Commerce Clause because the taxpayer could “choose” the local taxes simply by declaring residence there. General American, 270 U.S. at 372, 46 S.Ct. at 235. I do not believe such a justification for burdening interstate commerce would now pass constitutional muster.
We find no authority for the ... proposition advanced here that a tax that does discriminate against foreign commerce may be upheld if a taxpayer could avoid that discrimination by changing the domicile of the corporations through which it conducts its business. Our cases suggest the contrary.
Kraft General Foods v. Iowa, — U.S. -, -, 112 S.Ct. 2365, 2370, 120 L.Ed.2d 59 (1992), (citing Westinghouse Electric Corp. v. Tully, 466 U.S. 388, 406, 104 S.Ct. 1856, 1867, 80 L.Ed.2d 388 (1984) (discriminatory tax exemption struck on Commerce Clause grounds); Halliburton Oil Well Cementing Co. v. Reily, 373 U.S. 64, 72, 83 S.Ct. 1201, 1205, 10 L.Ed.2d 202 (1963) (use tax struck on commerce grounds for violating “strict rule of equality”).
Fourth, the General American Court viewed the variation between instate/out-state tax burdens as “an occasional inequality]” that had occurred “one year” due to discrepancies in application “impossible” to avoid. The Court specifically distinguished these variances from ones that are “a necessary and continuing result of the scheme of taxation.” Such a conclu*198sion is in sharp contradistinction to the present ease, where the additional use tax — by virtue of the very “local option” sales taxes it ostensibly seeks to offset— must necessarily impose a continuing unconstitutional burden upon interstate commerce in that half of the state that has not elected to levy a 1.5% or higher local sales tax.
In its reliance on General American, the majority ignores a substantial line of authority reviewing the constitutionality of sales/use tax schemes under the Commerce Clause.
The United States Supreme Court’s first detailed Commerce Clause analysis of a sales/use tax scheme is in Henneford v. Silas Mason Co., 300 U.S. 577, 57 S.Ct. 524, 81 L.Ed. 814 (1937). There, the State of Washington sought to compensate for the damage done to the competitive abilities of its instate sellers by the state’s 2% sales tax by imposing a 2% tax on the “use” of goods in Washington that were bought out-of-state. The Court upheld this statutory scheme, stating:
Equality is the theme that runs through all the sections of the statute.... When the account is made up, the stranger from afar is subject to no greater burdens as a consequence of ownership than the dweller within the gates_ Equality exists when the chattel subjected to the use tax is bought in another state and then carried into Washington. It exists when the imported chattel is shipped from the state of origin under an order received directly from the state of destination. In each situation the burden borne by the owner is balanced by an equal burden where the sale is strictly local.
Id. 300 U.S. at 583-84, 57 S.Ct. at 527-28. [Emphasis added.]
Halliburton Oil Well Cementing Co. v. Reily, 373 U.S. 64, 83 S.Ct. 1201, 10 L.Ed.2d 202 (1963), involved a similar compensatory scheme of taxation. The state supreme court ignored certain inequalities in the taxation scheme and upheld the taxes on the grounds that those inequalities were merely “incidental.” The United States Supreme Court expressly rejected Louisiana’s creation of a “de minimis” (close enough for government work) exception to the Commerce Clause.
The conclusion is inescapable: equal treatment for instate and out-of-state taxpayers similarly situated is the condition precedent for a valid use tax on goods imported from out-of-state.
Id. 373 U.S. at 70, 83 S.Ct. at 1204. The Court applied a strict rule of equality to its measure of “equal treatment.” “[Ejquality for the purposes of competition and the flow of commerce is measured in dollars and cents, not legal abstractions.” Id. Because the Louisiana tax imposed a greater burden on out-of-state goods than on local sales, the Court struck down the Louisiana statutory taxes as violative of “the strict rule of equality adopted in [Henneford].” Id. at 73, 83 S.Ct. at 1206. [Emphasis added.]
Unlike General American, which has been cited only twice by the United States Supreme Court in the sixty-seven years since it was written, see Gregg Dyeing Co. v. Query, 286 U.S. 472, 482, 52 S.Ct. 631, 635, 76 L.Ed. 1232 (1932) (citing General American for its due process analysis only); Charleston Federal Savings & Loan Ass’n., 324 U.S. 182, 190, 65 S.Ct. 624, 629, 89 L.Ed. 857 (1945) (same), Hen-neford and Halliburton have become principal mainstays of the Court’s Commerce Clause jurisprudence. See, e.g., Tyler Pipe, 483 U.S. at 245-46, 107 S.Ct. at 2818-19 (citing Henneford and Halliburton for the principle that “equal treatment” is the constitutional prerequisite for a valid use tax under the Commerce Clause); Williams v. Vermont, 472 U.S. 14, 23, 105 S.Ct. 2465, 2471, 86 L.Ed.2d 11 (1985) (same); Maryland v. Louisiana, 451 U.S. 725, 759, 101 S.Ct. 2114, 2135, 68 L.Ed.2d 576 (1981) (same).
Through its Commerce Clause cases, the Court has repeatedly and expressly rejected attempts to justify facially discriminatory taxes on the grounds that the discrimination was merely “de minimis.” After holding the system of credits and exemptions allowed under Louisiana’s ostensibly *199neutral “first use” tax to be unconstitutional, the Court struck down the tax and rejected a plea to remand for a hearing to determine the extent of the actual discrimination against interstate commerce, stating that “[w]e need not know how unequal the Tax is before concluding that it unconstitutionally discriminates.” Maryland v. Louisiana, 451 U.S. at 760, 101 S.Ct. at 2136.
In Westingkouse Electric, the New York taxing authorities tried to salvage a facially-discriminatory tax on the grounds that the discrimination was “de minimis.” The Court stated that “the extent of the discrimination does not affect our analysis,” because “the Court need not know how unequal the Tax is before concluding that it unconstitutionally discriminates.” Westinghouse Electric, 466 U.S. at 407, n. 13, 104 S.Ct. at 1867, n. 13.
Similarly, in Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 104 S.Ct. 3049, 82 L.Ed.2d 200 (1984), the Court refused to look the other way while Hawaii exempted from its 20% excise tax on wholesale liquor sales two varieties of tropical wines produced on the islands. Rejecting the state’s argument that the discrimination was “de minimis” because the sale of these local wines was less than 1% of the total liquor sales, the Court stated that “[i]t is well-settled the ‘[w]e need not know how unequal the Tax is before concluding that it unconstitutionally discriminates.” Id. at 269, 104 S.Ct. at 3054. The Court struck the entire forty-five million dollar tax, not just the exemption, on the basis of the state’s discrimination in under one percent of sales.
“The common thread running though the cases upholding compensatory taxes is the equality of treatment between local and interstate commerce.” Maryland v. Louisiana, 451 U.S. at 759, 101 S.Ct. at 2135. See also Tyler Pipe, 483 U.S. at 243, 107 S.Ct. at 2817 (same); Boston Stock Exchange v. State Tax Comm’n., 429 U.S. 318, 331, 97 S.Ct. 599, 607, 50 L.Ed.2d 514 (1977) (same). Thus, a compensatory tax must, in actuality, be compensating for something. Maryland v. Louisiana, 451 U.S. at 758, 101 S.Ct. at 2135 (“first-use” tax struck because it did not compensate for a burden placed on local goods).
No better summary of the relevant law is possible than that given by the Court when, after reviewing its use tax jurisprudence, it stated:
In all the use tax cases, an individual faced with the choice of an instate or out-of-state purchase could make that choice without regard to the tax consequences. If he purchased in State, he paid a sales tax; if he purchased out of State but carried the article back for use in State, he paid a use tax of the same amount. The taxes treated both transactions in the same manner.
Boston Stock Exchange, 429 U.S. at 332, 97 S.Ct. at 608. [Emphasis added.] In the present case, Missouri’s 1.5% additional use tax is unconstitutional under this standard, by the parties own stipulations, in more than half the state. As such, it cannot stand.
A fair reading of the relevant cases, I believe, compels the conclusion that there is no de minimis exception to the Commerce Clause. The duty exacted by a state must be the same whether the goods subject to taxation originated instate or out-of-state— all of the time and in all of the state. Such a result is consistent with the view announced in Quill Corp. that “a bright-line rule in the area of sales and use taxes also encourages settled expectations and, in doing so, fosters investment by businesses and individuals.” — U.S. at -, 112 S.Ct. at 1915.
Rather than draft a use tax that would conform to this bright-line, long-standing rule of constitutional law, the General Assembly made a rough “estimate” and assessed a flat 1.5% additional tax. The legislature’s solution fails to ensure the equality required by the Commerce Clause.
With respect, I do not believe the constitutionality of Missouri’s tax scheme here is even fairly debatable. This state’s tax is simply unconstitutional.