DISCRIMINATORY STATE TAXES

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DISCRIMINATORY STATE TAXES

• Discrimination is tested by whether the tax
  creates a greater burden on out-of-state
  activities than in-state activities.
• Boston Stock Exchange p. 271, 8th ed rejected
  New York's lower rates for stock transfers made
  through local exchanges. Bacchus Imports p.
  272 8th ed struck down an exemption for liquor
  taxes on locally produced beverages.
  Westinghouse p. 272, 8th ed rejected a New
  York credit for DISC domestic international
  sales corporation income only available if
  included in that states income subject to tax.

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DISCRIMINATORY TAXES

• Armco p. 272, 8th ed struck down a tax on
  manufactures or wholesalers where in-state
  manufacturers were not subject to the wholesale
  tax but out-of-state manufacturers were subject
  to the wholesalers tax and maybe a manufacturers
  tax in their state of domicile.
• American Trucking p. 274, 8th ed rejected
  Pennsylvania's flat tax on trucks entering the
  state which turned out to be 5 times higher for
  foreign trucks on a mileage basis.
• Oregon Waste Systems p. 275, 8th ed struck down
  a tax on out-of-state waste of 2.25 a ton where
  the in-state rate was 85 a ton.

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DISCRIMINATION

• In West Lynn Creamery p-. 277, 8th ed the
  court rejected a tax that was imposed on in-state
  and out-of-state milk equally, but the tax was
  rebated to the in-state farmer. In New Energy of
  Indiana p. 276, 8th ed a fuel tax credit
  available for only gasohol produced in the state
  was rejected. In Smith v New Hampshire p. 276,
  7th ed, p. 279, 8th ed an exemption from the
  income tax for interest received from in-state
  banks was discriminatory, but not discriminatory
  if received from out of state interest payers who
  were not banks. Banks and non-banks are not in
  competition, so says this court. The distinction
  is that non-bank interest payers are not in
  competition with banks.

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CUNO V DAILMER CHRYSLER

• To encourage DaimlerChrysler to build a plant in
  Ohio, Toledo offered it the investment credit and
  personal property tax relief authorized by Ohio
  law..
• The investment credit would be 13.5 of the cost
  of new investment which would be subtracted from
  Dailmer Chryslers Ohio income tax. The personal
  property exemption would exempt from tax up to
  75 of new personal property for up to 10 years.
  Cuno an Ohio taxpayer claims that these
  exemptions violate the commerce clause.
• The 6th circuit upholds the challenge to the
  investment credit but sustains the personal
  property tax exemption.

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CUNO V DAILMER 2

• The investment credit lost because an
  out-of-state business would be discriminated
  against since it would only get the credit if it
  built in Ohio but would not if it built a new
  facility elsewhere.
• To be eligible for the personal property tax
  exemption the business must maintain a specified
  level of employment and amount of investment.
  Thus, the plaintiffs urge, two taxpayers doing
  business in Ohio can be subject to different tax
  rates on a equal amount of property.
• The court rejects the plaintiffs personal
  property tax argument, noting that the exemption
  does not reduce an existing tax liability, but
  merely allows it to avoid a tax on newly acquired
  property. I dont see the difference either way
  a new investment gets a tax break that other
  taxpayers do not. However, all states offer
  property tax breaks in one form or another.
  Perhaps this is a subsidy, not a tax break.

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CUNO CONCLUDED

• The notes and questions on page 288 demonstrate
  that the author of your casebook either thinks
  the 6th circuit is loony, or, perhaps very
  clever.
• Note the observation, page 289. or is it
  the court just playing the hand it was dealt by
  the U.S. Supreme court.
• A petition for certiorari was granted by the
  Supreme Court but they weaseled out of the
  decision by holding that the plaintiffs did not
  have standing to challenge the tax.

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COMMONWEALTH EDISON V. MONTANA

• At issue is a challenge to Montanas 30 coal
  severance tax. The Montana Supreme Court upheld
  the tax on the ground that at the moment of
  severance the coal had not yet entered interstate
  commerce. The U.S. Supreme Court rejected that
  contention.
• The Court nevertheless upheld the tax despite the
  fact that 90 of the coal was exported to other
  states. Edison wanted a trial to show that the
  services provided by Montana to the consumers
  elsewhere are grossly inadequate to justify the
  tax.

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COMMONWEALTH EDISON

• The Supreme Court found no discrimination since
  the tax was a flat 30 of the sale price whether
  the coal was burned in or outside of the state.
• The court notes that taxes are not an assessment
  of benefits, that the rate of tax is outside the
  purview of courts and left to the legislatures
  and there is no due process requirement that the
  amount of taxes be related to the value of
  services provided by the state.
• After this decision there is no real importance
  to the 4th Complete Auto prong that the state
  provide benefits to the taxpayer.

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MORE COMMONWEALTH EDISON

• The majority opinion denies Edison a trial on the
  issue of whether the benefits provided by Montana
  were commensurate with the tax paid by 90 of the
  purchasers of the coal.
• Blackmans dissent would have given Edison a
  trial on that issue, where, as here, the tax was
  tailored to fall on out-of-state consumers.
  Such tailored taxes require careful scrutiny.

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HIGHWAY USE TAXES AND USER CHARGES

• American Trucking Association p. 304, 8th ed
  is the leading case here. The flat fee, imposed
  regardless of the mileage driven in the state,
  resulted in out-of-state truckers paying 5 times
  the fees of in-state truckers. The court
  recognized that complexities could arise in
  computing mileage, but not here as three other
  Pennsylvania fees or taxes fuel taxes,
  registration fees and income taxes were based on
  miles driven.
• Airport user fees have been upheld, and Hawaiis
  attempt to exempt its locally grown wine from a
  tax on spirits was rejected. pp.305-306

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AMERICAN TRUCKING V. MICHIGAN GRAHAM V. HEALD

• In a 2005 case the US Supremes, in American
  Trucking, upheld a Michigan tax of 100 per truck
  that applied only to intrastate shipments, on the
  basis that the tax did not involve or affect
  interstate shipments. 125 S. Ct. 2419.
• In Graham v. Heald, 125 S.Ct. 1885 2005 the
  Supremes struck down a state law that forbad the
  sale of wine directly to customers by out of
  state wineries. The prohibition did not apply to
  in-state wine growers.

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MID-CON FREIGHT SYSTEMS

• In a footnote on page 305 your author mentions a
  case pending in the Supreme Court challenging a
  flat 100 fee on trucks levied by Michigan.
• Ostensibly following a federal statute governing
  trucking fees the court upheld the fee in a 5 to
  4 decision.

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JAPAN LINES V LOS ANGELES COUNTY

• Los Angeles County levied a property tax on Japan
  Lines cargo containers that were in the county
  on each March 1. Since the average stay of the
  containers was only three weeks, the value was
  reduced to 3/52 nds of actual value.
• It is clear that nexus existed , that the tax was
  apportioned, that it did not discriminate against
  interstate commerce and there probably were
  county services commensurate with value. Still
  the tax was struck down.

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JAPAN LINES CONTINUED

• The court finds that there are two more tests in
  addition to those of Complete Auto that need to
  be considered in the case of the foreign commerce
  clause. First, the enhanced risk of multiple
  taxation and second, the states interference
  with federal uniformity.
• In this case Japan also taxed the containers, so
  multiple taxation was present and there is no
  court or tribunal that could prevent multiple
  taxation. Second, the United States needs to
  speak with one voice on such issues, which can
  only be done by the federal government.
• Wait dont the federal and state income taxes
  amount to multiple taxation? Of course, but
  there seems to be no objection to that
  whatsoever.

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JAPAN LINES CONTINUED

• The court was especially concerned about the
  possibility of foreign retaliation, that is,
  Japan would then tax our containers, which it
  presently does not. When the United States
  imposed an exit fee on Brazilians leaving the
  U.S. of about 70, how long do you suppose it
  took Brazil to enact such a fee on Americans
  leaving Brazil? Do more Brazilians visit America
  than Americans visit Brazil?
• No problem existed with a sales tax on such
  containers though they are used only in foreign
  commerce. See Itel Containers, p. 316, 8th ed
• Remember, a state can tax a corporation on its
  world wide income, if apportioned. Mobil Oil and
  Container Corporation.

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JAPAN LINES CONCLUDED

• The court notes, in passing p. 314 that a
  convention between Japan and the United states
  forbids duties and taxes on containers. Wouldnt
  this be enough to decide the case?
• If the tax were upheld, all the Japanese need do
  is dock at a port that doesnt tax containers,
  or, to the contrary, if the container goes to
  more than one state it can be multiple taxed.
• California argued p. 316 that Japan Lines is
  shortchanging the state as it has to provide
  services for no compensation. The court replies
  that if the state cannot recoup the value of
  services through user fees it may be
  disadvantaged. Does this mean California can
  charge user fees on containers? Probably.

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SEARS ROEBUCK Cop.318

• California permitted a property tax exemption on
  good imported from other countries, but not on
  goods imported from other states.
• The California court of appeals held that was
  discrimination and struck down the tax, as it
  gave foreign goods a competitive advantage over
  domestic goods. The US supreme Court affirmed by
  an equally divided court although the solicitor
  general argued in favor of the foreign goods
  exemption.

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