Boston Stock Exchange v. State Tax Commission – Oral Argument – November 02, 1976

Media for Boston Stock Exchange v. State Tax Commission

Audio Transcription for Opinion Announcement – January 12, 1977 in Boston Stock Exchange v. State Tax Commission

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Warren E. Burger:

We will hear arguments next in 75-1019, Boston Stock Exchange against State Tax Commission.

Mr. Pascal I think you may proceed when you are ready.

Roger Pascal:

Mr. Chief Justice may I please the Court.

This case raises the constitutionality of a 1969 Amendment to the New York Stock Transfer Tax which discriminates against interstate commerce by taxing stock transactions involving sales of stock outside New York far more heavily than similar transactions involving sales within the State of New York.

Our clients, the plaintiffs, appellants in this case are the principle stock exchangers in the United States located outside the State of New York, located in the states of Massachusetts, Illinois, Pennsylvania, Ohio.

These exchangers compete, your honor, with stock exchangers located within the State of New York and indeed with each other to provide efficient, fair and orderly markets for the purchase and sale of securities.

Indeed, the Securities Acts Amendments of 1975 recognize explicitly the public interest in fair competition among exchange markets to provide the fair and orderly markets that I have referred to.

In this record of this case there is evidence, all be not at a trial in the legislative history of Section 270-a of Competition in Specific Securities.

In 1968, the year in which this statute was passed 88% of the share trading on the exchanges who are plaintiffs here wasn’t securities listed on the New York Stock Exchange.

In 1968, that same year and prior to that time the Governor and Legislature of New York perceive what I would suggest as apparel, a competitive apparel of what one legislative witness characterized as the “competitive problems from non-New York Exchanges.

In 1968, New York reacted to that apparel by enacting a statute which added Section 270-a to the New York Stock Transfer Tax.

In his message of approval the Governor sighted and I am quoting again, “the greatly expanded capacity of the regional exchanges to challenge the New York exchanges for business”.

Regional exchanges are what people in the business in New York called exchanges outside of New York.

The Governor also stated that Section 270-a had as another of its purposes to provide and I am quoting again, “long-term relief from some of the competitive pressures from outside the State”.

The non-New York exchanges filed suit in the New York State courts.

In the State courts because the anti-tax injunction statute for declaration that Section 270-a was repugnant to the commerce clause and other clauses of the United States Constitution.

The defendants named were the State agency charged with enforcing that statute, collecting the tax and the members of the agency.

Trial Court denied a motion to dismiss which was the defendants’ response to the complaint and under New York procedure that denial, the motion to dismiss was appealed, was a matter of right, it was appealed and the appellate division of the New York Supreme Court reversed, ordered the complaint dismissed and the New York Court of Appeals affirmed that dismissal, holding Section 270-a to be constitutional and not to violate the commerce clause and other clauses of the constitution under which it was challenged in the complaint.

This case is here on appeal.

The question presented here, Your Honor is whether a State Tax on the sale, transfer or delivery of securities, stocks in this case which discriminates on the basis of whether the sale portion of a taxable transaction takes place inside or outside the State of New York violates the commerce clause.

Especially whereas here it is uncontested indeed proclaimed by the defendants that the vowed purpose and the actual effect of the statute was to confer a State created advantage on local stock exchanges at the expense of their out of State competitors.

William J. Brennan, Jr.:

The challenge here is only on the commerce clause.

Roger Pascal:

That is correct.

William J. Brennan, Jr.:

Whatever else relied on the State Court to abandon.

Roger Pascal:

That is correct; we have dropped the other two claims in the complaint which were the Privileges and Immunities Clause and the Equal Protection Clause.

The discrimination which I have been referring to Your Honors was the, I would suggest direct result of New York’s reaction of the apparel of competition, and the mechanism of the discrimination was to add two tax reductions in two large areas, and I say large because very little is left of pre-1968 scheme after the addition of these two areas.

The first was the inclusion in Section 270-a of a new limited or maximum tax of $350, actually it was more than $350 when it was passed but gradually reduced to $350 by the year 1973.

Since 1973, therefore, no matter how many shares of stock one sells, one is subject to a maximum tax of $350 if and only if this is the only variable the transaction takes place, the sale part of the transaction on the stock exchange takes place inside the State and not outside.

The second aspect of Section 270-a, which we suggest discriminates openly on the basis only of where the sale takes place is a new — what I have chosen referred to is a non-resident discount.

Whereby, non-residents of the State of New York pay precisely by 1973 and since that time one-half the tax they would pay if they were to execute their transactions that is make their sales inside New York — they pay half as much if they execute inside New York as if they sell their securities outside New York.

William H. Rehnquist:

Mr. Pascal sometime during your argument are you are going to treat the effect of the enactment of Section 28-d of the Securities Act?

Roger Pascal:

Yes, in fact, let me move to that right now Mr. Justice Rehnquist.

Section 28-d which is referred to in our reply brief as well as the appellee’s brief had the effect of making transfers by a registered transfer agent non-taxable, the legislative history of 28-d is that was an accident.

As we pointed out in our jurisdictional statement did not repeat in our briefs, “the Congress did not intend nor did the President intend in signing it to reduce the impact of the section about which we are complaining.

President made a statement that he would sign remedial legislation and both Houses of Congress, the Chairman of the appropriate committees made similar statements.

The fact is the remedial legislation has not occurred as we stand here right now and obviously will not during the session of Congress.

But Section 28-d clearly does not moot the case.

Number one, the appellees themselves, certainly I can speak for the appellants, they do not think it has been mooted or we would have so advised the Court.

William H. Rehnquist:

But whether or not it moots it, it conceivably could have an effect on the burden that the New York tax does put on Congress.

Roger Pascal:

That is true Mr. Justice Rehnquist.

If there is one, just one registered transfer agent in New York it will reduce the number of transactions it would otherwise be taxable and subject to this discrimination.

There are certain categories, however that are completely ineffective.

For example, deliveries to people living in New York the large institutional purchasers, sellers of securities, deliveries buy and two such persons are ineffective.

The appellees themselves have included I think appropriately an Appendix C in their brief which consists of the opinion of their counsel Mr. Crotty, this is a counsel to the State of New York Department of Taxation and Finance holding at Page 31 of the appellees brief, Mr. Crotty says in discussing, this is an opinion dated December 1, 1975, in discussing the impact of the 1975 amendments, I think general quite accurately, “however, where a sale, Agreement to Sell, Memorandum of Sale or any other delivery or transfer takes place in New York State, the stock transfer tax due and owing thereon must be paid.”

He is telling us that wherever transfers continue to take place and non-registered transfer agents, whenever there is a delivery the same Section 270-a and the rest of the stock transfer tax continues to apply.

So, I would suggest certainly, Mr. Crotty who was given as a fairly brief but concise and definitive opinion of the New York Department of Taxation and Finance of which by the way the defendant commission in this case is a part.

I think he can be taken at his word and I do not think we really have a dispute as to how 28-d operates or the impact of Section 270-a after the 1975 amendments.

Lewis F. Powell, Jr.:

Mr. Pascal would you give a example, two of deliveries, of securities in New York that would not be affected by the amendment to the Act of 34 but still be covered by the New York statute?

Roger Pascal:

Yes, Mr. Justice Powell, I might be basically trying to summarize one or two examples given on Page 8 of our yellow reply brief but the one that we give first and the one that I think is somewhat classic is an example of New York Life Insurance Company, purchasing securities.

It is either required by law to have a custodial agreement or to take possession of those securities.

It is required in other words this hypothetical New York Institutional Investor or Life Insurance Company in the example I have given, to take possession of those securities, when it takes possession whether it takes possession from a registered transfer agent or from its own broker the mere delivery is taxable under the transfer tax now as always.

Lewis F. Powell, Jr.:

So even after the transfer, which would be exempt under the transfer on the books by the transfer agent would be exempt under the Federal Act if the securities in the name of the life insurance company were delivered to New York that would be a taxable transaction.

Roger Pascal:

That is correct, that is precisely the situation right now.

Delivery is an important event and it is one that occurs frequently in New York and it is one that persists and it is one that persists particularly with regard to the large institutional investors in New York.

In fact, that would suggest wholly aside from mootness and even in terms of the significance of the case, in terms of the kinds of considerations that the Court normally gives at the beginning of a case ignoring jurisdiction that has not changed one bit.

We have in the books in New York Court of Appeals right now, the decision with in a State of enormous economic power, a very far reaching decision that condones a discriminatory tax scheme.

I think unlike anything close to anything the Court has ever dealt with and found to pass constitutional muster on the Commerce Clause.

The appellees refer to the extensive regulations promulgated by the defendants under the transfer tax they are indeed extensive, but there I would direct the Court’s attention to Section 440.1-i 12 rather simple regulation which just lists a number of different types of taxable transactions and further answer to Mr. Justice Powell’s question, one of those types of transactions is the delivery of a certificate by the transferor or his agent and his broker to the transferee or his agent that is unchanged.

William J. Brennan, Jr.:

What kind of transaction gets the benefit of the new 29-c?

Roger Pascal:

Well, the transaction where for example I suppose and I would suggest Mr. Justice Brennan and this was not intended but it does probably is the effect right now.

Roger Pascal:

The transaction where delivery is not made in New York that is some part of the transaction takes place there but it is made outside New York, where no delivery is made at all or delivery is made to — I suppose a registered depository or clearing agency, but if delivery is made that part is unchanged, and I would add that the policing of the transfer tax is done through the brokers in New York.

So again, you can see how the delivery still is something the State can and does get at and according to the appellees’ brief and Mr. Crotty’s opinion intends to get it.

William J. Brennan, Jr.:

Have we any idea of the proportion where of transactions in which there are deliveries thus subject to the tax in the proportion where they are not perhaps outside the New York tax.

Roger Pascal:

You mean after the impact of Section 28-d?

William J. Brennan, Jr.:

Yeah.

Roger Pascal:

No I do not think we do indeed I think you can tell from the date of Mr. Crotty’s opinion, December of last year, things were still being worked out until fairly recently and the record in this case has been frozen for a few years.

There is certainly nothing in the record and I really cannot add anything to it.

Harry A. Blackmun:

Mr. Pascal do you think our decision in the Hughes’ case of last year has any bearing on this, are you familiar with that case?

Roger Pascal:

Yes Mr. Justice Blackmun I am, I think it has baring in the sense that while the court and the opinion of the court reports to be confronting a situation of First Impression according to the language of the opinion of the court and as reemphasized by Mr. Justice Stevens concurring opinion and that situation of First Impression is not present here.

The court does reinforce what I would call some very steady, consistent varieties regarding discrimination against interstate commerce.

I think that the Court itself in Hughes made clear that it was dealing with a situation involving the State itself, State of Maryland and Hughes really becoming the entrepreneur if you will and bidding up the price of haux I think of taking the Court, the language of the Court in the majority opinion said until today the Court has not been asked to hold that the entry by the state itself into the market, as a purchaser and goes on to talk about the bidding up of haux.

I think that distinguishes the case by itself Mr. Justice Blackmun because there is no suggestion here that that is what has been done.

Indeed, I would suggest that the State of New York could have if the New York exchanges and their continued presence in New York were so important to the State and it has continued economic liability, it could easily have done something like the State of Maryland did.

It could have decided to subsidies, by cast subsidies as Mr. Justice Steven suggested or by a real estate tax rebate.

It could have done something that would not have impeded interstate commerce, what it could not do was pass a statute the whole purpose of which was to, in essence shift the economic burden of keeping the exchanges located in New York to their other state competitors, which is precisely the economic effect of what State of New York did here.

The defendants and the Court of Appeals, New York Court of Appeals have offered us some, what I would suggest our excuses for the result reached in the Court of Appeals and for Section 270-a, rather than avoidance as if you will that is there is nowhere in the Court of Appeals indeed to the contrary it is assumed that Section 270-a does create a discrimination, I do not think that is an issue here.

One excuse suggested by the defendants, but really not by the Court of Appeals is that somehow you can split up the various elements of the transaction, I do not think that that is a viable theory or has it been for quite a long time at least since Nippert againts Richmond and cases of that kind where the court discussed the breath of the mind of man in devising ways of fragmenting a transaction.

The motivation of protecting the local business is something on which we can agree.

I would suggest that ever since Baldwin against Seelig the Halliburton Oil Well Company against Reily, Nippert against Richmond.

The kind of discrimination we have here whether it is tax imposed discrimination or regulatory impose discrimination, it makes no difference.

Indeed, Freeman against Hewit one of the cases cited by defendants suggested that the tax type of discriminatory barrier could be worst.

I think that reinforced in Mr. Justice Brennan’s opinion and Great Atlantic and Pacific Tea Company against Cottrell last term also in which the court said that a state cannot erect economic barriers to protect local business for competition.

I think that’s one of the varieties which I was referring to that would not fly here.

What do we have here, we have statements in the briefs and motion to dismiss by the appellee’s that the purpose of Section 270-a was to protect a major industry, to protect and preserve the state securities industry and this one to make New York the financial center of the world that is proclaimed in the motion to dismiss to be one of the purposes of Section 270-a.

William H. Rehnquist:

They did not think it already was?

Roger Pascal:

I suppose I wanted to secure their position Mr. Justice Rehnquist and that is what is wrong with the statute.

The court of appeals also suggested that the and, I must say it is an argument that is somewhat unique so one cannot sight a string of cases.

The Court of Appeal suggested that the state was free to discriminate among different types of interstate transactions that what was really being done here was discrimination among all numbers of transactions, all which were interstate.

Of course, we could go to Halliburton to see that in almost every case where that kind of situation occur, where you had discriminatory tax or regulatory burden you could be comparing cases all of which had interstate elements, it is important here and what I think is really again undisputed is that here we have a situation, where the discrimination operates based on whether a particular, very important element of the transaction occurs inside or outside the state.

Again, the Court of Appeals suggests and this relates also to the protection of local businesses point that it can neutralize the advantages of the place of origin that is since New York has already imposed the tax they can even up the odds as it were with the out of state businesses.

Roger Pascal:

That precise language virtually is what is used by the court in Baldwin against G. A. F. Seelig, to say that you cannot do it and it was reinforced in Halliburton having imposed the tax.

New York might subsidize its businesses and might grant tax rebates.

It could do a lot of things to help local businesses, but it could not neutralize the advantages of the other states and the securities markets…

Potter Stewart:

There are causing a burden on those (Inaudible).

Roger Pascal:

Exactly.

Finally there is a suggestion in the Courts of Appeals argument that the practical effect, that is a quote of a phrase I believe from Best against Maxwell, the practical effect of the tax is somewhat de minimis because New York residents are likely to execute their transactions within New York that of course is not only not born out by the record, but it flies directly into the face of legislative history of those who passed it.

The very assumption of Section 270-a was that within the modern age, with modern telecommunication and computer systems where everybody has access to the various markets instantaneously and where the instantaneous communication may gain, especially a large institutional seller, such as exist in New York.

Particular advantage that the, all markets will open to everybody and therefore to suggest that as a practical matter the New York institutions and other sellers and buyers of securities who stay in New York because of geographic propinquity is something that is absolutely unsupported in fact belied by the record.

Potter Stewart:

Do the jurisdiction in which these regional exchanges operate impose no local transfer taxes whatsoever?

Roger Pascal:

That is correct, none of them do.

In fact I think the only other state in the union which might impose a transfer tax similar to New York is Florida and I am not even sure of that one right now.

Potter Stewart:

What is the PBW in the stock exchange?

Roger Pascal:

PBW, well name has changed a few times, it is the PBW is stands for Philadelphia-Baltimore-Washington that is I think now the Philadelphia Stock Exchange.

Potter Stewart:

And these names listed as plaintiff’s appellants on the appellants brief, all of the plaintiffs is appellants?

Roger Pascal:

They are all six of them, that is correct.

I will reserve the remainder of my time.

Warren E. Burger:

Well, I think we will not ask you to spend the minute-and-a-half, we will resume at 1 o’clock.

Mr. Bush you may proceed whenever you are ready.

Robert W. Bush:

Mr. Chief Justice I may please the court.

If you like to emphasize at the outset then this review constitutes in our judgment one of the most historic cases has come before this court because it actually means the economic and fiscal solvency of the state of New York together without the City of New York.

Warren E. Burger:

Just one tax will you all add.

Robert W. Bush:

Well, part of this tax is earmark to guarantee to the Municipal Assistance Corporation of the City of New York, the federal loans which congress has authorized to the city and to the Big Mac, so called Big Mac Corporation under legislation.

Warren E. Burger:

We have the figures of theirs, the aggregate amount of the tax shown on the records?

Robert W. Bush:

It has shown in the legislative history for the years on review.

Warren E. Burger:

What was the?

Robert W. Bush:

Well it is in the neighborhood of $200 million annually although the volume has decreased since the enactment of the 28-d last year of the SEC Act.

Warren E. Burger:

That is what your friend is complaining about that that is a pretty heavy burden on interstate commerce.

Robert W. Bush:

Well, we do not think there is any burden here whatsoever, Your Honor, as a matter of fact that a tax does not operate outside of the State of New York, there is no extra territorial tax imposed whatever.

Either upon these plaintiffs or upon any of the shareholders who do not sell or buy or sell their securities in the State of New York.

The only taxes imposed are for those local transactions involving sales and transfer occurring within the State of New York.

Robert W. Bush:

And of course these plaintiffs as competing stock exchanges are not taxed at all upon any business that is transacted on anyone of those exchanges.

A tax occurs only if there is a sale within the City of New York, on one of our New York Exchanges or where there is a transfer made within the City of New York by a corporate transfer agent, limited solely by the enactment of 28-d a year ago.

But even there that has only limited application here because…

William J. Brennan, Jr.:

You may suggested that 28-d is going to reduce the return, did you suggest how much if it would have been about $200 billion annually wealth?

Robert W. Bush:

Well that was a roughly, at the beginning of this lawsuit that was the annual yield from our…

William J. Brennan, Jr.:

And what would be the effect of 28-d?

Robert W. Bush:

28-d which I think reduces it somewhere around $60, $70 million a year.

William J. Brennan, Jr.:

That was about a 130…

Robert W. Bush:

Yes, somewhere in there.

Now in the committee report to the Big Mac Assistance acted last year, public law 94-143 there is a table of index accompanying that senate report, which shows the annual yield during 1975 or the fiscal year ending last in 75.

William H. Rehnquist:

Well do you think the interstate commerce argument would be different than this case, Mr. Bush if instead of earmarking the tax proceeds for big mac that earmark has raised Governor Carey’s salary to $5 million a year.

Robert W. Bush:

Prior to 68, Your Honor, the revenue from this tax went into the General State Treasury at the same time this 270-d was passed the revenue was transferred to the City of New York for general purposes and then during the fiscal crisis, the revenue was earmarked to guaranty to the federal government that the loans borrowed by the city would be backed up in part by the revenue from the stock transferred tax, along with other revenue.

William H. Rehnquist:

Other than your inspection Fee type case, have our interstate commerce burdened decisions ever given any intimation that the purpose for which the state uses the proceeds of the tax effect the termination is to whether or not it burdens interstate commerce?

Robert W. Bush:

Well, if I, my recollection of reading those cases it vary with tax to tax, as long as the money is used for a public purpose by a state or one of its municipalities and it is a legitimate function of government.

It seems to me that a judicial adjustment has to be made case-by-case where the nature of the tax involved and the element used to which the proceeds maybe put.

William H. Rehnquist:

Well there is the federal question turn on, how worthy we regard the cause to which the proceeds are put?

Robert W. Bush:

I think in part it does, Your Honor, I do not think that the…

Thurgood Marshall:

Do not we assume that all taxes are for good purpose and that all taxes are money that the state needs?

Do not we assume that…

Robert W. Bush:

I would think so.

Thurgood Marshall:

What good is this argument?

Robert W. Bush:

Well, I do not think that the constitution contemplates especially in this case the death nail of the sovereign state of New York through fiscal collapse which is…

Thurgood Marshall:

You mean that the state of New York looses $30 Million has gone?

Robert W. Bush:

It maybe gone if we cannot.

Thurgood Marshall:

But there’s some part in terms of what lies in the newspaper they said you needed a whole lot more than that.

Robert W. Bush:

Your Honor, we need every nickel I can get, and part of it is, it is from this slot.

Thurgood Marshall:

Well, why not put a hate tax of $100.00 on everybody?

The fact that you need the money does not seem we need to help you to protect you against the constitutional infirmity of the statute, if the statute constitutionally affirms the fact that you need the money, we will help you.

Robert W. Bush:

Well, it is our possession, Your Honor, that the statute has not infirmed constitutionally.

There is no burden imposed on any commerce interstate or otherwise whatsoever.

Thurgood Marshall:

I submit that, that is the argument that we are here to listen to.

Robert W. Bush:

That is right.

That is the question before this, but part of that…

Thurgood Marshall:

We will assume that New York needs the money.

Robert W. Bush:

We need it desperately, there is no question about it, but I mentioned this public assistance because at the same time that that was passed last year and the Congress had before the consideration of the amendments to the SEC Act one of which was this amendment 28(d) but that did not divest the state of New York of its taxing power in other areas, on the transactions within the State of New York in the sale of securities.

28(d) merely limited the tax or exempted the tax for transfers within the State of New York not on another types of transactions within the State, that power was not affected by Congress whatsoever.

Now I do not really, the question was asked earlier about the relevancy of this huge decision that was handed down last June.

As I read the opinion there it constitutionally was sustained because it was a legitimate purpose of the State of Maryland for the protection of its environment to do something about ridding itself of those junk automobiles.

It looks important from an environmental point of view to preserve the State of Maryland I think for the same reason it is important to the State of New York for its economy to remain wholesome for the same reasons and the cases relied upon by the plaintiffs here were all reviewed and passed upon in the Hughes opinions of last spring and also in the earlier case of the Atlantic and Pacific Company case it was handed down the first part of last year.

The cases relied upon therein are precisely the same as those which are relied upon by the plaintiffs here, now in the A&P case this court found that the very same cases were controlling as to the facts there involved.

But when it came to the Hughes case case four or five months later the same cases were rejected by the majority here.

So that our position is that all of these cases, plaintiff site have got to be distinguished upon their facts and upon the illegal principles involved.

Now some of those were involved a license to engage in interstate commerce which has been forbidden under the commerce clause or there was a gross receipts tax on the gross proceeds from the interstate commerce, and others were involved other types of drumming situation in sales.

Now none of those cases are in point here because we are not licensing anyone here and we are not imposing upon a privilege for someone to engage in its sales transaction within the State of New York.

Every stockholder in this country is free to buy and sell his stock on any exchange.

The tax is only applied by New York where there is a sale within the State of New York, or a subsequent transfer within the State by a corporate transfer agent.

Unless those events occur, no tax is paid by anybody regardless of where the sale maybe made, whether it is on plaintiffs’ exchanges or off-the-counter or over-the-counter type of transaction, and it seems ironic to us that the plaintiffs are complaining that the competitive standing of our New York stock exchanges in comparison to theirs and that the State ought to offer bounties or subsidies to our own exchanges similar to what was done in Hughes situation, merely begs this little question.

New York has done something to equalize a competitive standing and it did so by the enactment of the special tax inducement provisions of Section 270(a) of the tax law to encourage out-of-state investors to continue to engage within the State of New York and they offered non-resident citizens a tax reduction in order to do that, and it offered on the other hand that the large block sale investors special tax inducements if they traded within the State of New York.

However, they are still free to trade anywhere where there is a market for them, and we do not think that that is a burden upon the interstate commerce, in fact it is a direct inducement to engage in interstate commerce.

Now, the plaintiffs’ concede in their briefs submitted here that the State has the taxing power to impose this tax.

They only complaint because we reduce the tax.

John Paul Stevens:

Mr. Bush I might interrupt you, am I correct though in understanding that there is one rate of tax paid if the transaction is over the exchange in a different rate but it is not, if it is over the New York Stock Exchange?

Robert W. Bush:

If it is done within the State of New York we offer non-residents a reduced tax if they sell within the State of New York.

John Paul Stevens:

Over the New York Stock Exchange?

Robert W. Bush:

Over the New York State residents.

New York State residents if they do business within our exchanges they are taxed at the former rate, at a higher rate.

John Paul Stevens:

How much difference in rate is there?

Robert W. Bush:

Well, it is a graduated beginning back in 68 down through 73 roughly now 50% less for out-of-state non-resident.

John Paul Stevens:

Now, it is your defense that it is the differential independant.

Now what is your defense again that these are not interstate transactions, is that?

John Paul Stevens:

I really do not understand the query that you…

Robert W. Bush:

Our Stock Transfer tax we argue is at the end of commerce, it is upon a sale or a transfer occurring within the State of New York after commerce has come to an end.

It is not a direct burden on the flow of that commerce within the State of New York.

We take the position and commerce has ended, the flow has ended and ceased, and that the final act of sale or transfer within the State of New York is purely a local incident which this court has sustained in the past against constitutional tax as a burden…

John Paul Stevens:

What is the reason for differentiating them for having two different levels of tax?

Robert W. Bush:

Merely as an inducement to bring the out-of-state business into the State of New York.

John Paul Stevens:

Is it intended to affect out-of-state business?

Robert W. Bush:

Well, you mean affected by keeping it out of the state or bringing it in?

John Paul Stevens:

Well, is it intended to change the way in which out-of-state business would be done but for this particular taxing scheme?

Robert W. Bush:

Well, the tax has no extra territorial effect if there is no later transfer within the State of New York, if the sale is made on say at Chicago Exchange the tax is not imposed on that, it is only if that stock is thereafter transferred within the State by a corporate transfer agent that the local taxes is imposed on the transfer but no tax is imposed on an out-of-state sale.

John Paul Stevens:

Is it correct that the act of the transfer agent generates one tax if the prior sale was made over the Chicago Exchange and a different tax it was generated over the New York Exchange?

Robert W. Bush:

That is right!

John Paul Stevens:

So there is the discrimination, but you say it is not a burden.

Why is it not a burden again?

Does it tend to discourage transactions over the Chicago Exchange by companies and stock of companies that have transfer agents in New York?

Robert W. Bush:

That is the allegation made by the plaintiffs.

John Paul Stevens:

What is your answer to the allegation that is what I understood, that happens does it?

Robert W. Bush:

Well, I think it does happen but the SEC is reporting, their volume goes up every year anyway so the tax itself I do not think has that much of an adverse effect upon regional exchange located in Chicago.

Warren E. Burger:

But the New York legislatures indicate what is the purpose along the lines of Justice Stevens?

Robert W. Bush:

The purpose was to retain the New York State stock exchanges within the City of New York which at that time was threatening to move out of State because they could not afford to continue business within the State, and that is part of our legislative history which is shown on our brief and also in the new jurisdictional statement, and as an inducement to keep those exchanges within New York it was agreed upon by the City of New York, the State legislature, the governor’s office and the New York Stock Exchange that something had to be done and one means of doing it was to reduce the tax for future years on this type of transaction.

There is a consequence, the exchanges agreed to stay within New York.

Now, the effect of their leaving New York would have made a loss of millions of dollars and local taxes which they have been paying up to them, to the city the loss of employees and the taxes there engendered by them and plus the rents and everything else which are involved in the operation of these exchanges, and of course New York City has been the financial center of the world, it is recognized by the Congress and the mandatory acts passed last year with respect to the SEC amendments that are involved here.

All of which were enacted to preserve the New York City as the financial center not to embarrass it nor to impede its growth but to retain it for the purposes of having adequate financial interest in the city and to provide the capital and everything else if needed in a growing economy.

William J. Brennan, Jr.:

Mr. Bush, may I ask, before this reduction in tax was the old right such a burden on transfers on the exchange that the exchanges were suffering and this is why they want to leave New York to escape to tax?

Robert W. Bush:

That was part of it; that was only a small part of it, Your Honor that the stock exchange thought that because of this increased competition that it was receiving from these regional exchanges something had to be done.

William J. Brennan, Jr.:

Was it losing business to those regional exchanges?

Robert W. Bush:

Yes it was.

William J. Brennan, Jr.:

Then the idea was if you reduced the tax in the manner that it was reduced, this would not only retain the business that otherwise will be lost but also increase the amount of tax…

Robert W. Bush:

Hopefully, it would bring in additional business into New York.

William H. Rehnquist:

Was one of the reason it was losing business that New York imposed a tax on transactions on the New York Exchange and the other states did not impose the taxes on transactions on their exchanges?

Robert W. Bush:

Yes sir.

We had two exchanges, the New York Stock and the Amex Exchange, both dealing with different listed in the securities.

But the transfer tax it was involved with both exchanges for both, all transactions on those two exchanges.

Now in our legislative history that we have appended to our brief we show the economic statistics that are involved up to 1968 and the concern that was expressed by the State of New York if this business would be lost.

William H. Rehnquist:

What analogy do you draw; Judge Walker’s opinion in the Court of Appeals rested one point as I read it, kind of on the use tax analogy.

Robert W. Bush:

Well, that was the argument that we were making in the court below that the transfer tax was similar to a local sales or use tax in the City of New York and which has been constitutionally sustained in the past.

Now, the thrust of plaintiffs’ argument changes from court-to-court as we proceed with this litigation.

As we read the briefs were filed in the courts below their constitutional thrust on the interstate commerce question was not to themselves but to some stockholders or someone — investor who they were claiming what was being jeopardized.

Now, it is their own business primarily that they are aiming in this constitution.

William H. Rehnquist:

Well, it be a poor lawyer who having lost in two appellate courts did not change its tactics.

Robert W. Bush:

That is right, that is right, and we are not embarrassed by that, we I think met this head on and at every stage.

As I say to repeat myself, we do not see that there is any undue, unfair burden imposed upon interstate commerce at all.

Especially, here when nobody, when none of these plaintiffs pay any tax at all and do not have to because our statute does not reach out to their exchanges.

Warren E. Burger:

I suppose in Gibbons against Ogden like New York could have argued that they needed the revenues, you should do here?

Robert W. Bush:

Well, in Gibbons in that line of case Your Honor I think dealt with more in the nature of the license fee for the privilege you engaging in interstate commerce or that no one was free to do unless they had a permit to do it.

We do not impose any such requirement here to engage in a stock transaction.

Everyone is free to sell at any exchange regardless of where he — as so long stock maybe listed on a regional exchange limited by that either a stockholder is free to pick any plaintiff’s exchange to buy or sell a stock.

The problem becomes one, if he has to transfer within the State of New York and a corporate transfer agent is located here the stock goes to New York to that agent to be transferred on the corporate books of the company and new stock issued.

But even that is going to be eliminated under these SEC amendments because the recommendations are now to eliminate all stocks typically it is altogether and put it on a computerized tape situation and if and when that occurs than there will be fewer paper transactions involving a transfer of stock certificates.

William J. Brennan, Jr.:

What about the deliveries that were affected by your —

Robert W. Bush:

Well, Your Honor, I think counsel —

John Paul Stevens:

the institutional deliveries —

Robert W. Bush:

Counsel I think has misread that ruling of the commerce, the counsel of the tax department it is limited to the specific statutory provisions of 28(d) of the SEC Act and all these doing as rephrasing that language and it says, “Either delivery or transfer within the State of New York”.

So those two types of transactions are now limited by 28(d).

Any other type of transaction is still subject to the tax and the committee reports that recommended this legislation made clear to the Congress that they were non-intending to divest the State of New York of any other additional taxing power that it might have, commerce or otherwise, and they recognize I am sure that the transfer tax was merely a local tax which is court has held in the past on certain local taxable incidence occurring within the State of New York.

Byron R. White:

Mr. Bush, did you challenge the standing of the respondents or the petitioners here?

Robert W. Bush:

Yes, we did up through the Court of Appeals of the State of New York.

Byron R. White:

That was rejected.

Robert W. Bush:

It was rejected.

Byron R. White:

What was your standing argument?

Robert W. Bush:

Well, I think that this Court of its own motion could just…

Byron R. White:

Yes, but what was your standing argument in it?

Robert W. Bush:

Well, what we urged at the very beginning that they had no standing to maintain the law.

Byron R. White:

What kind of standing you are talking; case or controversy or what?

Robert W. Bush:

They were not aggrieved because no tax was imposed on them and they hadn’t a legal standing to question the constitution.

Byron R. White:

You say they did not suffer any injury in fact from these taxes?

Robert W. Bush:

That is right and that is spelled out in our knowledge of motion on grounds which is in the jurisdictional statement, Mr. Justice White has to — but we felt that since the Court of Appeals decided the way it did that it decided as a matter of State Law that they did have standing to institute and maintain the lawsuit.

Byron R. White:

Does that one bind those?

Robert W. Bush:

No that is right.

Byron R. White:

What have you got to say about it, do you hear anything?

Robert W. Bush:

Well, I think we still maintain, Your Honor, that they have no standing to question the constitutionality of this statute and we think that the…

Byron R. White:

One of the mechanics of paying the tax, let us assume I live in Boston and I have a large block of stock to transfer and I called my broker, tell him to sell it in Boston, he sells them and then I have to get it transferred to New York.

So I will have to pay this tax.

What are the mechanics…?

Robert W. Bush:

Well, most of the….

Byron R. White:

I suppose, I give my shares to my broker.

Robert W. Bush:

That is right and he has ever been designated as a Stamp Issuer and affixes the stamps to the paper or send into New York in some bank or some other member firm affixes the stamps to the certificate.

Refunds of course are provided under the statute in case of an erroneous paid tax and funds are set aside every year to refund any taxes that might have been erroneously paid or collected.

Byron R. White:

I suppose if I do what I say in my example, I pay this tax in New York and I am talking to my brother in New York and he says, “Well, why don’t you send them down here the next time you have it, it will only cost you half as much,” and I said, “Well, I’ll do that and I tell my broker and he says, “Well, that’s great except that now I don’t get a commission.”

He is not enough heard too.

Robert W. Bush:

Well, the Article Twelve of New York State Tax law provides for penalties in the event of evasion and things like that.

Byron R. White:

What is evasion I am just trying to find out if there are some regional Stock Exchange really is hurt by this law?

It is quite an incentive to not to employ the services of the local stock exchanges.

Robert W. Bush:

That’s right.

Well, I don’t know to what extent a shareholder…

Byron R. White:

You’ll hope that’s terribly successful because you want to bring all the sales in a New York account.

Robert W. Bush:

That’s right and we want to retain what we…

Byron R. White:

To the extent you are successful, to that extent the regional exchanges are hurt, I think.

Robert W. Bush:

Well I have read the reports of the SEC.

Byron R. White:

Well, isn’t that right or not?

Robert W. Bush:

Well, no because the SEC reports, annual reports showing their volume going up every year.

Byron R. White:

Or maybe they might have gone more.

Robert W. Bush:

They might have gone out more, who knows that’s a matter of speculation.

Byron R. White:

I don’t know, your tax system is devised to give people a break if they don’t use the regional exchanges.

Robert W. Bush:

Well, all I can say is that….

Byron R. White:

Isn’t that?

Robert W. Bush:

Our revenue was falling off in recent years from what it was back at the time when this thing was first passed, I know that, as a matter of fact, although our record here does not clearly reflect that.

The table that was submitted with Public Law in 401 and 403 that Big Mac Assistant thing shows estimated transfer of taxes to the City of New York on appendix A in the neighborhood of 184 million which is substantially less than the amount that we estimated back at the time this lawsuit was started and which was in the neighborhood of 250 millions.

So it has fallen off significantly and it no doubt will as time goes on, especially if this 28(d) is not modified in some way next year by the next congress.

Harry A. Blackmun:

Are you taking the position Mr. Bush that the Congressional Act here makes this case one less worthy of our consideration?

Robert W. Bush:

I think it does since this legislation was enacted because I think it indicates the unwillingness of congress to preempt a field and which under the constitution I think it has the power to do, that has not yet been fully done, Your Honor but I don’t think the constitutional question is as significant today as it was three or four years ago when this thing was first started and I think that Hughes opinion sort of points that out also.

Warren E. Burger:

Your time is up Mr. Bush.

Pascal, do you have any further to be brief?

Roger Pascal:

Mr. Chief Justice, I would suggest.

William J. Brennan, Jr.:

How are your clients heard Mr. Pascal?

Roger Pascal:

Well Mr. Justice Brennan, the injury in fact to which Mr. Justice White referred is the direct open-bald attempt by the state to take her customers away.

It is competition standing and that is why the Court of Appeals as well as both courts below in New York rejected the defendants standing argument, relying indeed in the Court of Appeals as I recall upon camp data processing and also, there really is no difference between New York and this court’s standing doctrine because the New York Court of Appeals sighted it also.

William J. Brennan, Jr.:

Can you think of any case involving burden of interstate commerce from this court where we have permitted someone in the position of your client to raise the interstate commerce argument?

Roger Pascal:

I think that the elements have not come together in the interstate commerce case that I know of Mr. Justice Rehnquist.

I think that the elements are there that competitors-type standing in other cases involving the control of the currency.

William H. Rehnquist:

That’s Administrative Procedure Act standing, conceivably you can carry it over if you want to into this area but I don’t think it follows as the night, the day.

Roger Pascal:

It doesn’t follow as night follows day but it has I believe and subsequent sighted in non-administrative procedure cases.

I think in a non-administrative procedure case we have, Pierce against Society of Sisters which was among other things, a standing case and I think that that is another case, that would apply here where you have the or true acts against Race where you have the employee who’s employer, is required to discriminate against aliens.

The employee who is going to be the subject and who is really going to be burdened could complain.

I am not suggesting that these exchanges are the only potential plaintiffs here but if you compare the exchanges who are — this is I think a rare thing in State Legislative history Mr. Justice Rehnquist, you actually have the targets of this legislation named in the legislative history that the defendants put in the record, their name.

They are actually foreseen as the targets of the legislation, the competitors of the local exchanges and against them, the legislation is aimed.

I would suggest that….

Byron R. White:

Your clients are the only ones who would raise it that I suppose because the ones who get the break would never raise it.

Roger Pascal:

Well the might theoretically, Justice White.

They could say that this is a form of economic coercion that reduces their choices to where they — I referred earlier for example to competition between the exchanges …

Byron R. White:

But as New York suggested, all we have to do is complain a little more and you will have to pay the tax, the higher tax wherever you sales.

Roger Pascal:

That’s right.

Byron R. White:

They know nothing about the complaint that.

Roger Pascal:

Well that’s why the exchanges are the plaintiffs.

I think that’s right.

I would suggest that the legislative history is an unusual source of material to dispose of any injury, in fact problem here.

I would also like briefly to discuss the — suggesting the case maybe less worthy of consideration which Justice Blackmun mentioned.

I don’t think the legal principle is any less worthy of consideration regardless of how the dollar may have change, and I would agree that Section 28(d) really changes it much more than what we complain of here.

Finally, I would have to say that the Big Mac Argument if I can call it that is one that just plain surprises me but it is an easy one to respond to because to quote from the appellee’s brief on page 3, Section 11 to which he referred, this is of the same statute we challenged.

The possibility of this particular Section being on constitution occurred to the New York Legislature.

Section 11, requires the re-reimposition of the higher taxes, the higher rates of taxation without distinction between sales by nonresidential or large blocks, if Section 270(a) is declared unconstitutional.

We are doing New York a favor.

There is no way it can lose.

William H. Rehnquist:

How come they don’t realize it?

Roger Pascal:

I am afraid that the time to ask that question is passed Mr. Justice Rehnquist, I can’t, because the only effect, the relief we see could have would be to reinstitute the previous higher tax.

We have never challenged in any court or even whispered the suggestion that we are attacking anything more than Section 270(a) of the transfer tax which does not impose any tax.

It merely creates a new discriminatory rate.

Thank you, Mr. Chief Justice.

Warren E. Burger:

Thank you gentlemen.

The case is submitted.