Fulton Corporation v. Faulkner – Oral Argument – October 31, 1995

Media for Fulton Corporation v. Faulkner

Audio Transcription for Opinion Announcement – February 21, 1996 in Fulton Corporation v. Faulkner

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William H. Rehnquist:

We’ll hear argument now in Number 94-1239, Fulton Corporation v. Janice Faulkner.

Mr. Cummings.

Jasper L. Cummings, Jr.:

Mr. Chief Justice and may it please the Court:

The outcome of this case will depend on three points.

First, the North Carolina tax upon the intangible value of stock discriminates, both facially and in actual operation, against interstate commerce.

Second, there is no defense to this discrimination either under the compensating tax defense or otherwise.

Thirdly, this case is not controlled by the 1912 decision in Darnell v. Indiana.

First, I would like to speak to the discrimination.

That the discrimination in the tax is facial is admitted either explicitly or implicitly by the decision of the North Carolina supreme court and by the State in its brief before this Court.

Were it not for that facial discrimination, there would not be necessary the attempt to prove the compensatory tax defense which both the State supreme court and the State before this Court have argued.

Not only is there facial discrimination against interstate commerce, but perhaps more importantly, this tax–

John Paul Stevens:

May I just ask you, it’s really not discrimination against commerce as it’s discrimination against those who own stock that… the company of which does business elsewhere.

It’s discrimination against the stock ownership, not against the activity, is what I’m saying.

The ownership in different kinds of companies is taxed differently.

Jasper L. Cummings, Jr.:

–That’s correct, Your Honor, just as in the very early case of I. M. Darnell Company, which in fact was the same corporation involved in the Darnell case, the company that receives logs shipped from another State and was taxed in that case differently from logs that it had received from the taxing State, while it might not have been the outside shipper of the logs, it suffered the first impact of discrimination.

John Paul Stevens:

Was the tax on the ownership interest in the company the tax on the stock there?

Jasper L. Cummings, Jr.:

The tax at issue here is the tax–

John Paul Stevens:

Here it is, yes.

Jasper L. Cummings, Jr.:

–on stock, yes, sir.

John Paul Stevens:

It wasn’t in that case though, was it?

Jasper L. Cummings, Jr.:

Well, there it was a tax on logs which were owned by the in-State company, but we’ve had many cases before this Court where the party who was objecting before this Court was not the party dealing in interstate commerce but was just a local party who had dealt with someone who was in interstate commerce.

John Paul Stevens:

But have we squarely held that it would be impermissible to tax at a different rate the ownership in stock of a company that did its business in the State, as opposed to stock in a company that only did its business out of State?

Forget all the gradations of, you know, half… just the extreme polar cases.

Is that… you think that’s clearly invalid.

Jasper L. Cummings, Jr.:

Yes, sir.

John Paul Stevens:

And what is the closest case on that point, in your view?

Jasper L. Cummings, Jr.:

The closest case to the facts in this case, I believe, is Westinghouse v. Tully, the 1984 decision of this Court written, I believe, by Justice Blackmun.

Westinghouse v. Tully also involved the tax on a shareholder.

The shareholder in that case was Westinghouse Corporation.

It had a subsidiary that was a DISC, a domestic international sales corporation, and the tax at issue was the parent’s franchise tax.

Jasper L. Cummings, Jr.:

The franchise tax was computed in a way that increased the parent’s franchise tax as the subsidiaries exports through the ports of other States increased.

It didn’t matter that the exports through the ports of the State of New York stayed the same, but if the subsidiary did more activity in interstate commerce, the shareholders’ franchise tax went up.

We submit that that same type of discrimination exists here.

Under the–

William H. Rehnquist:

The Court… are you saying the Court struck down the tax in Westinghouse v. Tully?

Jasper L. Cummings, Jr.:

–Yes, Your Honor, the Court struck down the tax on the shareholder, which was a franchise tax in that case.

So we have here both the facial discrimination, which as I indicated was admitted both in the brief and by the North Carolina supreme court, we have the actual penalty against interstate commerce, in that here the corporation could do the same amount of business in the State of North Carolina but could expand its business in interstate commerce and as a result of that the shareholders’ stock tax will go up.

So therefore the two taxes, the stock tax which my client has paid and the corporate income tax which is said to be a compensatory tax, which we will get to in a minute, are not in this case mutually exclusive proxies for each other.

This is not an either-or case.

This is not a situation where one tax goes down and the other tax goes up.

Just as in Westinghouse v. Tully, or by analogy to that, the tax paid by the corporation to North Carolina could remain the same, the shareholders’ tax could go up just because the subsidiary of the corporation had increased this interstate commerce.

Having shown both actual and facial discrimination against interstate commerce, we turn to the compensating tax defense on which the State and the North Carolina supreme court primarily relied.

First, it is important to notice that the compensating tax defense has never been allowed to impose an actual penalty on interstate commerce by its operation.

As I have illustrated, it would do so if it were allowed to be applied in this case.

David H. Souter:

Your theory of the penalty is the theory that, in effect, the investment will be siphoned out of interstate commerce and into investment in corporations that do business solely intrastate.

Jasper L. Cummings, Jr.:

Yes, Your Honor.

David H. Souter:

Is that argument affected by the fact that, by and large, the investment market is a national investment market?

I mean, if the stock were being sold entirely in the State, your argument would be a very strong one.

Stock characteristically, though, is sold on national markets, and is this fact, this tendency to favor intra rather than interstate investment in effect going to be diluted almost to the point of the incidental by the fact that we have a national market, and that the investor in Oregon isn’t going to be worrying about this?

Jasper L. Cummings, Jr.:

Your Honor, it might be somewhat invested.

I can say from personal experience that I know from many persons in North Carolina they like to invest in corporations like CP&L, Carolina Power & Light, Duke Power, local corporations that they know about, and it motivates them, and there is some evidence in the record of this motivation… there’s an affidavit… to invest in a corporation in which there will be less intangibles taxed.

There are many decisions of this Court stating that we do not need to know how great the impact on interstate commerce is to strike down discrimination.

A third point, just 2 weeks ago, the supreme court of the State of Kentucky, in a case titled St. Ledger, dealt with a very similar tax upholding it, relying on the Darnell case, which we will come to in a minute, but finding, as a factual matter, the very discrimination that you just described to actually occur and to be a concern to that court, by analogy.

Antonin Scalia:

Why do you say that none of the other compensating facts cases involve any discrimination, discriminatory effect on interstate commerce?

I would think even the classic one does.

I mean, that is the offsetting sales and use taxes.

Every time such a tax is imposed, it becomes much less attractive to buy a car in another State where there’s no sales tax.

I mean, you know, if there’s a sales tax in Virginia and no sales tax in North Carolina, I will go and buy my car in North Carolina all the time.

Jasper L. Cummings, Jr.:

I don’t think that sort of interstate luring by nontaxation is the type–

Antonin Scalia:

Oh, you can call it luring, but any difference in price is a luring.

Antonin Scalia:

This happens to be a difference of price caused by the imposition of a sales tax.

Jasper L. Cummings, Jr.:

–Well, up to this point, this Court’s opinions in that type of case have… by my reading have looked to two types of discrimination.

First, is the imported good taxed by this State?

Let’s talk about the State of North Carolina.

Is the imported car taxed by North Carolina at the same rate as the car bought locally?

If the answer is yes, that’s the first cut that there is no discrimination.

Antonin Scalia:

Okay.

Jasper L. Cummings, Jr.:

Then, as this Court discussed in the decision in Jefferson Lines, there needs to be a credit applied by this State… let’s say North Carolina… for any sales tax paid to the other State from which the car was imported.

When that credit is applied, that’s the second cut to ensure that there is no interstate discrimination.

Antonin Scalia:

Okay.

Well, you can say that there cannot be undue interstate discrimination, perhaps, no more than is necessary to prevent your higher taxes from having what would be the normal economic effect of higher taxes.

Jasper L. Cummings, Jr.:

Perhaps the response to your question would be a statement that was made in Armco v. Hardesty, which is a very important case to us.

As you may recall, in Armco v. Hardesty, there was concern about the fact that out-of-State manufacturers had to pay the in-State wholesaling tax, but in-State manufacturers only had to pay the in-State manufacturing tax and did not have to pay the wholesaling tax.

The decision… of course, that was struck down.

The decision posited the situation where one State might impose simply a wholesaling tax and one State might impose simply a manufacturing tax, and the decision said that would be okay, that’s not a discrimination, and I think that’s somewhat analogous to your situation that one State might choose not to tax at all, and another State might tax.

Sandra Day O’Connor:

Now, in order to win, Mr. Cummings, I guess you would have to persuade us to overrule Darnell.

Jasper L. Cummings, Jr.:

Your Honor, no.

I believe Darnell… if it please the Court, I believe Darnell can be distinguished.

If you choose not to distinguish it, we do ask you to overrule it, and if you’d like me to turn to Darnell now, I will.

Darnell is a very cryptic decision.

It’s a decision that is hard to understand, and it’s hard to understand the facts without resort to the decision of the underlying Indiana supreme court, which I’ve done and will embroider a little bit on the facts of Darnell.

William H. Rehnquist:

Well, when you say embroider, you mean take it from the Indiana–

Jasper L. Cummings, Jr.:

Take it from the Indiana supreme court… I certainly will not add to that… yes, Your Honor.

It is important to notice that in Darnell there was not the set of facts that we had here.

In Darnell, there was not a situation where the tax paid by the corporation to the State of Indiana could remain level, and the tax paid by the shareholder could increase, because the corporation had entered into interstate commerce.

That was not the way the regime in Indiana worked.

The regime in Indiana was a true, either-or situation.

It was a true set of mutually exclusive taxes.

The taxpayers would either pay one or the other.

What the State of Indiana tried to do, I believe, was to tax all stock that it could get its hands on at 100 percent.

Jasper L. Cummings, Jr.:

If the stock were owned by a local resident in an out-of-State corporation, the State of Indiana made that local shareholder pay tax on 100 percent of the value of the stock he owned, a very unremarkable sort of tax, sort of property tax.

If the corporation was domestic… and this is where the either-or comes in.

If the corporation was domestic, the shareholder didn’t have to pay tax on his stock, but the corporation paid tax, in essence, on all of its stock as if it were paying for the shareholder, and the way that was done was, the corporation paid tax on the greater of the value of the tangible personal property in Indiana that it owned, or the capitalization value of all its market value stock.

And therefore, Justice Holmes looked at this situation and said, well, certainly Indiana can tax the stock of residents, and certainly Indiana can make the corporations pay tax on their property, including their capital stock, and we don’t see anything wrong with that, and by the way, we’re not going to consider the situation where the corporation might own property in Indiana and in other States, because–

Stephen G. Breyer:

–Was capital stock a net or gross?

Jasper L. Cummings, Jr.:

–Gross.

Well, it was the true market capital value of the stock.

Stephen G. Breyer:

Yes, but if they had liabilities, did they subtract it?

Jasper L. Cummings, Jr.:

Yes, Your Honor.

Stephen G. Breyer:

They subtracted liabilities.

Jasper L. Cummings, Jr.:

Correct.

Stephen G. Breyer:

So therefore in almost every case the gross… if there’s goodwill in the company, and unless in an unusual circumstance except for that, then the value of the… the total value of the stock will be greater than the intangible or tangible property… the tangible property.

Jasper L. Cummings, Jr.:

That was my–

Stephen G. Breyer:

So almost every case, what they’re really paying tax on in the corporation is the stock.

Jasper L. Cummings, Jr.:

–Is the stock, right.

I agree, Your Honor, and therefore it seems that Indiana was simply trying to tax all the stock in the State.

It taxed the stock to the domestic corporate issuer, and it taxed the stock to the local shareholder of the foreign corporation.

David H. Souter:

If we don’t look any further than what Justice Holmes wrote, wouldn’t it be simpler to say that what Holmes was, and what the Court was holding in that case was really something about equal protection in judging economic regulation, and the one thing that is clear today is that that is not the standard for dormant Commerce Clause taxation and let it go at that?

Jasper L. Cummings, Jr.:

I’m with you all the way, Justice.

I agree completely.

David H. Souter:

But I mean, it really could be–

Jasper L. Cummings, Jr.:

It really could be–

David H. Souter:

–looked at as simply as that, couldn’t it?

Jasper L. Cummings, Jr.:

–Yes, Your Honor.

The case can be parsed between the Commerce Clause discussion and the Fourteenth Amendment discussion, and the Commerce Clause discussion falls in the middle of the second paragraph, I believe, where they said… where Justice Holmes said, we’re not dealing with the case where a foreign corporation owns some Indiana property, and property tax was paid to the State of Indiana but there was no deduction allowed against the shareholders’ stock.

He said, we’re not going to deal with that, because they’re not our facts, and that is the very paradigm case that I stated at the outset that represents the actual penalty here, where we can have–

William H. Rehnquist:

Well, what did the Court say it was deciding in Darnell?

Jasper L. Cummings, Jr.:

–It said it was deciding, Your Honor, whether a State can tax the property of a domestic corporation, that property including the capital value of its stock, in the stock of a foreign corporation.

William H. Rehnquist:

Yes, but it didn’t say that in the abstract.

I mean, if the State couldn’t do it, it would have to be some provision of the Constitution that would prevent it.

William H. Rehnquist:

What provision of the Constitution did the Court say was involved in Darnell?

Jasper L. Cummings, Jr.:

The citation follow… well, the Court said at the outset of the opinion that there had been a claim made under the Fourteenth Amendment and under the Commerce Clause, but when it got to the last paragraph, where it discussed the stock tax on in and out-of-State corporations, it cited the case of Kidd v. Alabama, which was a 1903 decision that was purely under the Fourteenth Amendment.

And Kidd v. Alabama went off on Coe v. Erroll, and Coe v. Erroll was one of those early cases which dealt, again, with timber… they seemed to have a lot of timber in the early days… and it simply held that the State from which the timber was cut could tax the timber, and then if the timber was shipped across the State line, the State where it was received could tax the timber.

William H. Rehnquist:

Well, but that’s not equal protection, even Fourteenth Amendment.

That’s due process, isn’t it?

Jasper L. Cummings, Jr.:

Yes, Your Honor.

I believe it was both due process and to some extent equal protection.

William H. Rehnquist:

Well, did it… is there any mention of equal protection in the opinion?

Jasper L. Cummings, Jr.:

There’s a mention of “substantial equality”.

Justice Holmes in the last paragraph said that substantial equality is attained by taxing the stock of the foreign corporation and the property of the domestic corporation, and I agree that the Commerce Clause, part of the decision was really not decided by the Court because it did not have the facts before it.

Antonin Scalia:

Do you think we follow that approach today, that is, evaluate the tax just on the basis of how it applies to the particular petitioner before the Court and not how it applies overall?

Jasper L. Cummings, Jr.:

No, Your Honor.

Antonin Scalia:

I don’t know that we’ve done that in the cases since I’ve been sitting here, anyway.

It seems to me we look at the tax’s overall impact, so no matter how you slice it, you’re asking us to cut back on what we said in Darnell.

Jasper L. Cummings, Jr.:

Well, I believe… yes, Your Honor, and I believe a straw has already been put into the wind on that issue in the Jefferson Lines decision earlier this year.

It was the first time that this Court has cited Darnell since 1935.

And in that citation, in the footnote in Jefferson Lines, the Court was dealing with giving credit for… to one taxpayer for a tax paid by another taxpayer, or perhaps for a different tax paid by that taxpayer, and this Court said, if a State chooses to have an apportioned gross receipts tax on a bus company, and if it chooses to give a credit for the sales tax paid to that State by the bus rider, then it must give a credit for out-of-State sales taxes paid by bus riders that bought their ticket out of State.

The last line in that footnote said, however, we’re not now deciding… probably because cert had been granted here… we’re not now deciding whether a similar credit must be given to a tax paid by a C. F. Darnell, the first cite of Darnell since the 1935 decision in Colgate v. Harvey.

I think you were sending us a signal that you saw the inconsistency of Darnell with the credit mechanism set up in footnote 6 in Jefferson Lines, and I say to you that your question about third party is, I think, easily answered, because Darnell is no more a “third party”… excuse me.

The corporation in relation to its shareholder is no more a “third party” than is the buyer of the bus ticket a third party in relationship to the bus company.

In fact, there is an even closer relationship, because these are related parties.

These are corporation and shareholder, and if the State chooses to think that there’s a close enough relationship that the State can create this sort of intertwining of the corporate tax and the shareholder tax, then certainly this Court can see that there’s a close enough relationship to be concerned about the impact on interstate commerce.

Ruth Bader Ginsburg:

Is it your position that there is no tax that a State can constitutionally impose on the in-State shareholders of an out-of-State operating corporation?

There is no constitutionally permissible tax?

Jasper L. Cummings, Jr.:

No, Your Honor.

We believe–

Ruth Bader Ginsburg:

What tax could a State impose on the shares that its taxpayers hold in corporations acting out of State?

Jasper L. Cummings, Jr.:

–We have no objection to a tax on 100 percent of the value of stock in an out-of-State corporation.

Ruth Bader Ginsburg:

All stock, so if they didn’t–

Jasper L. Cummings, Jr.:

A hundred… if the State of North Carolina wants to tax 100 percent of the value of all the stock owned by everybody, that suits us fine, because–

Ruth Bader Ginsburg:

–But nothing singularly.

Is there any tax that could be imposed on North Carolina shareholders of out-of-State corporations that are operating out of State, period?

Are you saying that any tax… of course, if you tax domestic corporations you can put it on evenly, but just with respect to the out-of-State–

Jasper L. Cummings, Jr.:

–I would not think so, Your Honor, and that question is somewhat similar to the question that was raised recently in the Perini case from Massachusetts involving the distinction between how you were going to give a franchise tax relief for in-State and out-of-State corporations, and the Massachusetts supreme court held for the taxpayer and this Court did not issue certiorari, my closest analogy in a recent case.

Sandra Day O’Connor:

–Well, has North Carolina repealed this tax–

Jasper L. Cummings, Jr.:

Yes–

Sandra Day O’Connor:

–do I understand?

Jasper L. Cummings, Jr.:

–Yes, Your Honor.

Sandra Day O’Connor:

How many other States have a similar scheme, do you know?

Jasper L. Cummings, Jr.:

At least four.

Sandra Day O’Connor:

And what would they be?

Jasper L. Cummings, Jr.:

One is Kentucky.

I believe Georgia is another.

They are listed in the response of the State to our petition.

Whether–

David H. Souter:

The same… I mean, I… just perhaps following up on Justice O’Connor’s question, I suppose your reasoning here is going to be equally applicable when we’re talking about related taxes on different taxpayers who are themselves related not as shareholder in corporations but as debtor and creditor.

I mean, I suppose this is going to be applied, your rule would be applied in the area of taxation of savings account interest, and so on, on banks, wouldn’t it?

A bank could not say, well… a State could not say well, we will not tax interest earned in the banks of our State, but we will tax interest earned in the banks of other States.

The rule would be the same.

Yes, Your Honor, and that issue has percolated up through the appellate courts.

Justice O’Connor, if you are concerned about the repeal, the repeal occurred on April 18 of this year, 3 days after the last due date for the filing of the ’95 returns, and therefore the repeal has not even taken effect yet.

Last week I called three attorney… three accountants and was told of five cases of assessment of this tax that have occurred since the repeal, and therefore this tax is ongoing in the State of North Carolina.

The Court has not questioned the compensating tax defense, and I will not dwell on it except to say that it is designed to prevent a preference for interstate commerce.

It is designed to address the situation where the normal taxing regime somehow misses taxation of interstate commerce.

Well, here, the normal taxing regime, the compensated tax, according to the decision of the North Carolina supreme court, is the corporate income tax.

What does the corporate income tax fall on?

It falls on all of the income earned from business in the State of North Carolina.

This Court has said many times that’s all the State of North Carolina is entitled to tax the corporation upon, and therefore, nothing has been missed.

There’s nothing left to be compensated for, and yet the North Carolina supreme court decision did indicate that the stock tax was a proxy for tax on corporate income earned out of State.

No doubt realizing the difficulty of this position, the State has developed a new theory on its appeal brief to this Court that somehow there must be a payment for access to capital markets by foreign corporations, and if the foreign corporation is not paying a corporate income tax to the State, then its shareholders must pay a stock tax, which is a proxy tax on the foreign corporation.

David H. Souter:

Getting back to Justice Ginsburg’s question, we have no objection to a tax on 100 percent of the value of the foreign corporation’s stock, as long as it’s also applied to the value of the local corporation’s stock.

The issue is not really so much the compensating tax defense as the need, as the other shoe that the State has to drop, which is, oh, by the way, we don’t just want to tax 100 percent of the value of the stock for access to capital markets, we want to give this deduction so that we don’t have double taxation intrastate, and that is, I believe, the real issue in this case.

And that brings us, Justice Souter, back to Jefferson Lines, because I believe Jefferson Lines indicated that a State cannot attempt to avoid intrastate double taxation and at the same time create interstate double taxation and ignore taxes paid to other States.

And Justice Rehnquist, this also brings us back to… Mr. Chief Justice Rehnquist, this also brings us back to Darnell, because in Darnell Mr. Justice Holmes said, we need not, or the State of Indiana need not concern itself with the taxes paid by the corporation to other States.

That can just simply be irrelevant.

Well, we know that the more modern Commerce Clause jurisprudence of this Court indicates that a State must concern itself with taxes paid to other States, and that was mentioned in Armco v. Hardesty, where the decision said, this out-of-State manufacturer who is paying the local wholesaling tax undoubtedly is paying an out-of-State manufacturing tax, or may be paying an out-of-State manufacturing tax and therefore it is subject to dual taxation, whereas the manufacturer who sells at home only pays one tax.

Now, there might be some question of whether other States have manufacturing taxes.

Frankly, we don’t have one in the State of North Carolina, but there’s not much question that almost every State in these 50 States has a corporate income tax, so with respect… so regardless of how many States have stock taxes, every State has a corporate income tax, and therefore to the extent other States are collecting corporate income taxes on multi-State corporations, when their stock is held in North Carolina there will be double taxation, whereas if the stock is owned by the local corporation, and more importantly if the local corporation just keeps its business at home, only one tax is paid.

If there are no further questions, thank you.

Very well, Mr. Cummings.

Mr. Rothfeld, we’ll hear from you.

Mr. Rothfeld, how does an individual taxpayer in North Carolina, who perhaps owns some shares or something, figure out what he ought to pay?

Charles A. Rothfeld:

Mr. Chief Justice, and may it please the Court:

Do you mean in filing as individual tax return?

William H. Rehnquist:

Yes.

There’s a graded scale?

Is he supposed to find out for himself whether the shares he owns are of an out-of-State corporation or in-State, and that sort of thing?

Charles A. Rothfeld:

My understanding, Your Honor, is that there is a list of stocks that’s maintained by the State, and he can determine that simply by looking to that list to determine which percentage of the stock is taxable, so I think it’s a fairly routine and easy mechanical matter.

I should say, I think that this case involves two distinct Commerce Clause principles.

The first is the principle of nondiscrimination, which we think in this case turns on application of the compensatory tax doctrine.

The second distinct principle is the principle of apportionment, which we think in this case turns on the application of the internal consistency test, and I think it’s useful to keep these principles straight, and I’ll discuss them separately, starting with the question of discrimination, and on that question, given some of the discussion thus far, I think it’s useful to begin with what the State understood the relationship to be between the income tax and the shares tax at the time that it enacted the taxable percentage deduction that’s at issue in this case.

Now, at that time, before it enacted the taxable percentage deduction… and I think I should note, as has been observed, the taxable percentage deduction and, indeed, the entire intangibles tax, have been repealed.

William H. Rehnquist:

Why don’t you slow down a little bit, Mr. Rothfeld.

Charles A. Rothfeld:

Oh, I’m sorry.

We’re so excited to get to the meat of the case, Your Honor, that I’m speeding along.

Before the State enacted the taxable percentage deduction it entirely excluded corporate shares from the reach of the intangibles tax, and when the State began to consider an expansion revision of the intangibles tax, it was of the view that intangibles were simply paper representations of other values that might already be subjected to other State taxes, and in particular, that corporate shares were representations of other corporate values that might be subjected to the State property tax or income tax, and when the State determined to expand the intangibles tax to reach corporate shares, it decided to try to avoid duplicative taxation of these related intrastate values.

Now, the State considered but rejected the idea of a discriminatory tax that would exempt the shares of domestic while taxing the shares of foreign corporations, and instead hit upon the idea of the taxable percentage deduction under which the shares of a corporation that pays income tax are exempted from the shares tax, and the shares of a corporation that does not pay income tax are subject to the intangibles tax.

The idea was to impose a single, nonduplicative tax on all related intrastate corporate values.

Stephen G. Breyer:

Why didn’t you do the same thing with the whiskey tax?

Charles A. Rothfeld:

Well, I–

Stephen G. Breyer:

I mean, people out of State don’t pay the whiskey tax–

Charles A. Rothfeld:

–Well, I think–

Stephen G. Breyer:

–and foreign corporations don’t pay tolls.

I suppose the reason they don’t pay income tax in North Carolina is they don’t have income in North Carolina, nor do they buy whiskey in North Carolina, nor do they use North Carolina bridges, so I mean, that’s obviously the thing that’s bothering me.

Charles A. Rothfeld:

–Well, I think what you say is right, Your Honor, but I think that the State’s view… and I’ll suggest in a minute the State’s view is clearly supported by the decision in Darnell.

The State’s view is that these paper representations that it’s trying to tax are representations that exist elsewhere, but they’re values that also are present in the State in the form of the corporate shares, and the States… I think as a matter of economic reality, it is true that there is a close relationship between the value of a corporation’s shares and the amount of the corporate income, and therefore the States took the position–

Stephen G. Breyer:

I… you’re saying that the ones that do business in North Carolina pay an income tax to North Carolina, and what you’re trying to do is make up for the fact that the people who don’t do business in North Carolina, unfortunately North Carolina will lose that income for the income tax.

Charles A. Rothfeld:

–Well, I think–

Stephen G. Breyer:

And the problem that I have with that is not the technical thing, it’s just the practical thing.

Of course North Carolina loses the income tax of a California company.

So do they lose the whiskey tax.

So do they lose a lot of things.

If we were to uphold this, wouldn’t we have to say a State could impose some kind of tax on a Maine company to make up for the fact that its employees don’t buy whiskey in North Carolina?

What’s the difference?

Charles A. Rothfeld:

–I think the difference, Your Honor, is that there is something in the State that’s taxable, and that’s the corporate shares, and the corporate shares represent something.

They represent an ownership interest in a part of the corporation, and there are various ways that one could look at what those shares represent.

In Darnell, we think that the State looked at it, and this Court–

Stephen G. Breyer:

Let me try once more.

Could you assess a tax on shares in North Carolina of a foreign company to make up for the fact that that foreign company has employees who don’t buy food in North Carolina so they don’t pay the sales tax, to make up for the fact that they don’t use bridges in North Carolina?

You see–

Charles A. Rothfeld:

–Yes, I–

Stephen G. Breyer:

–if I accept your principle, wouldn’t I also have to accept that?

Charles A. Rothfeld:

–I think clearly not, Your Honor.

Stephen G. Breyer:

Because.

I think that the… what we visualize this tax as being, we visualize corporate shares and corporate income as having a particular relationship, just as corporate shares and perhaps corporate property do.

We don’t think that corporate shares and the food purchases of the corporation’s employees have that relationship.

We don’t think that that’s what corporate shares represent, or were understood to represent when the State passed this test.

What we think the shares represent are corporate values, and we think income is one of those values.

Well, then if that is true, you could tax 100 percent of the income of any corporation regardless of where its income was earned–

Charles A. Rothfeld:

Well, we–

David H. Souter:

–which you know you can’t do–

Charles A. Rothfeld:

–We clearly–

David H. Souter:

–and why does that not point to the problem in this case?

Charles A. Rothfeld:

–Well, I think that leads us to the compensatory tax analysis here.

It certainly is true that–

David H. Souter:

You’re saying compensatory tax analysis in effect can supplant the rule that requires an apportionment of income.

Charles A. Rothfeld:

–Well, I–

David H. Souter:

I think that’s what you’re saying.

Charles A. Rothfeld:

–I don’t think so.

We’re… both of these taxes–

David H. Souter:

Well, that’s going to be the effect of it, isn’t it?

Charles A. Rothfeld:

–I don’t–

David H. Souter:

That’s the effect of your theory, isn’t it?

Charles A. Rothfeld:

–I don’t think so, Your Honor.

I think that–

David H. Souter:

You’re saying the intangible stock is in effect a surrogate for income, and therefore the two may be considered in relation to each other in determining what I should tax, and if, in fact, there is this surrogate relationship, and you are justified in taxing the one, you would be justified, I suppose, in taxing 100 percent of the income even though 80 percent of it was earned out of the State.

Charles A. Rothfeld:

–Well, we certainly recognize that the State can’t tax 100 percent of the income, or any of the income which is earned outside of the State, unless the State has apportionable taxing nexus to it, and we’re not trying to tax the income.

What we’re suggesting is that under the compensatory tax doctrine, related values that are present in the State and out of State may be subject to tax, and I think it’s important, Your Honor, not to confuse the apportionment principle which relates to credits for taxes paid elsewhere and the nondiscrimination principle, which relates to whether or not the taxable percentage deduction here must be struck down as being discriminatory.

Now, our understanding of how that deduction should be viewed is that there is one… there are substantially related values, and that is the test the Court has articulated in the compensatory tax doctrine cases, that there are substantially related values between the value of corporate shares and the amount of corporate income as a matter of economic reality, and we think given that substantial relationship, imposing a tax, a tax as a mutually exclusive proxy either on income, if income is taxable, or on the corporate shares which represent those values, that that does not impose a discrimination.

Now, the question of whether or not we’re taxing too much total value, whether the tax is on apportionment, is a separate internal consistency question which I’ll get to once we’ve disposed of the discrimination problem.

Now, I think that first of all the Court has addressed this issue in Darnell.

Now, I know Mr. Cummings said that it was a cryptic decision.

We don’t find it cryptic.

Ruth Bader Ginsburg:

Mr. Rothfeld, the Kentucky supreme court recently dealt with this matter, and as I understand its decision, it rejected your argument up until the last step.

It found that there was discrimination against interstate commerce.

It went all the way down the line as though it were going to hold for the taxpayer, but in the end it said, but Darnell is the Supreme Court’s instruction, and so despite the prior steps that went in the taxpayer’s favor, at the bottom line, Darnell is the Supreme Court’s instruction and so we follow it.

But as I understand the Kentucky supreme court, it rejected the argument that you have been making so far.

Charles A. Rothfeld:

Well, I’m not sure that I agree with everything in the opinion of the Kentucky supreme court in that case, although the Kentucky tax was a different tax than this tax.

The Kentucky tax was a property tax which actually differed even from the property tax in Darnell, in that as I understand the Kentucky system, if a corporation paid tax on 75 percent of its property to Kentucky, then there would be an automatic complete deduction in taxability of the shares, which is not the system we have here.

But insofar as the Kentucky court was saying that the kind of system we have here is discriminatory and is not saved by the compensatory tax doctrine, which we disagree with that analysis, as I say, first of all we think that the Court addressed precisely this problem in Darnell, which we don’t find cryptic, and I think looking at what Justice Holmes said for a unanimous Court, and looking at the arguments that were made to the Court in Darnell, the argument was precisely the argument that’s being made here, that there was a discrimination in the treatment of the corporate shares.

Ruth Bader Ginsburg:

I do find it cryptic, so maybe you can explain it to me.

Charles A. Rothfeld:

As I understand it, and perhaps I’m missing the crypticism there, but as I understand it, what was happening in Darnell was that there was a tax on real and tangible property that was imposed on corporations, and there was an intangibles tax imposed on the value of all corporate shares in the State, and insofar as the State paid intangible… insofar as the corporation paid tax on its tangible and personal property in the State, then the taxpayer was relieved, the individual shareholder was relieved of paying a shares tax, just as there is relief here for the individual shareholder if the corporation pays income tax.

And the Court, looking at this scheme, said that a tax on the property of a domestic corporation… and this was the Court’s language… a tax on the property of a domestic corporation and on the shares of a foreign one is consistent with substantial equality, and that’s precisely what we’re saying here, that there are related values that are being taxed in precise proportion to one another.

Stephen G. Breyer:

Well, why are they any more related than whiskey is related?

I’m sorry to go back to that, but it just seems to me that the reason that you don’t have an income tax on California companies in North Carolina is because the California companies don’t have income in North Carolina.

Charles A. Rothfeld:

Well, I think the best I can do… perhaps I can’t satisfy you completely, Your Honor, but the best I can do is that the share is a representation of something else.

It’s a representation of other values.

Stephen G. Breyer:

It’s a discounted value of a future income stream, and some of that income stream will be taxed when it reaches a North Carolina person, and the other is taxed in the form of an income tax.

Charles A. Rothfeld:

And–

Stephen G. Breyer:

And North Carolina gets its share of that, and the others get their–

Charles A. Rothfeld:

–Well, I think–

Stephen G. Breyer:

–I mean, I agree that’s what it represents.

You don’t have to… so–

Charles A. Rothfeld:

–Well, and our analysis is that taxing both the representation of the income stream and taxing the income stream is in a sense a kind of duplicative taxation, and… because one is a representation of the value, the other is the value itself.

I mean, that is the rationale for what the State is doing here.

Antonin Scalia:

–Do you agree with Darnell that the shares represent property?

Charles A. Rothfeld:

Well, in a sense… I mean, when you look at the shares of–

Antonin Scalia:

I don’t think anybody–

Charles A. Rothfeld:

–No, I think–

Antonin Scalia:

–any moderately sophisticated stock analyst would value shares on the basis of book–

Charles A. Rothfeld:

–I think that’s right.

That’s why this–

Antonin Scalia:

–So Darnell must be wrong.

Charles A. Rothfeld:

–Well, I think this case is a stronger case for the State than Darnell, because as you say, clearly investors understand shares as representing a portion of income.

I mean, that’s why price-to-earnings ratio is such an important instrument for investors, so I think that… Darnell makes our case a fortiori if Darnell was a representation of equivalent value.

Antonin Scalia:

Mr. Rothfeld, how many cases have we had that have approved compensating taxes?

What kinds of taxes have been approved as compensated?

Charles A. Rothfeld:

There have been very few decisions of this Court involving compensating taxes at all.

I mean, there was a recent decision, the Oregon Waste decision, which rejected a compensated tax argument.

Right.

Charles A. Rothfeld:

There was a decision, the Arctic Maid case, which is cited in the briefs, which accepted a compensating tax argument involving one tax which was imposed upon the canning of fish and another tax that was imposed upon the freezing of fish.

Now, that is not a perfect analogy to our case because both taxes were–

Antonin Scalia:

So canning and freezing of fish, and sales and use taxes.

What other ones?

Charles A. Rothfeld:

–Well, we plead that Darnell–

Antonin Scalia:

Darnell.

Charles A. Rothfeld:

–is a compensating tax which is directly on point, and I think it’s useful, Your Honor, to contrast this case with the Oregon Waste Systems decision from 2 years ago, which I think is very instructive on how to analyze this.

The Oregon Waste Systems case, Oregon argued that its discriminatory tax on disposal of waste at Oregon landfills and its income tax were substantially related and that the taxes were compensatory, and the Court rejected that argument because it found that disposal of waste at an Oregon landfill and earning income are not substantially related, and to prove that point, the Court found it decisive that an Oregon firm that disposed of waste in an Oregon landfill would be subject both to the income tax and to the discriminatory landfill fee, meaning that the case… that the taxes were not mutually exclusive proxies for each other.

Now, I mean, here, I think that the test–

Antonin Scalia:

I know, and these are substantially… because you said here what is going on is basically a tax on access to capital markets, is that–

Charles A. Rothfeld:

–Well, I think that… that should not be misleading here, Your Honor.

Neither of these taxes is a tax on access to capital markets as such.

The income tax is a tax on the earning of income in the State, and it’s justified by the benefits that the State provides to corporations that earn income there, and the shares tax is a tax on the ownership of property, intangible property in North Carolina, and the taxpayer here is a North Carolina resident–

Antonin Scalia:

–So I should ignore all the stuff about access to capital markets.

Charles A. Rothfeld:

–Well, we make that point, Your Honor, simply because, in response to the taxpayer’s argument here that the effect of this tax is to burden out-of-State corporations in their issuing of shares, and that somehow that’s unfair because those corporations get no benefit from North Carolina.

In fact, we think they derive substantial benefits from services provided by North Carolina which allow those firms to sell to residents who have accumulated capital and to engage in transactions with these out-of-State firms, so we don’t justify these taxes because each tax is imposed in precisely the same way on access to capital markets.

We justify these taxes because, and perhaps my exchange with Justice Breyer was unsatisfactory, but we justify these taxes because we view, as we think the Court did in Darnell, corporate shares as being representation of other values, and those values may be equivalent.

They may be substantially similar within the meaning of the–

David H. Souter:

The taxes are not equivalent, and there is no substantial equivalent of taxing event.

Charles A. Rothfeld:

–Well–

David H. Souter:

I mean, if your argument is sound, then we’re going to read an awful lot of recent compensatory taxation law going off–

Charles A. Rothfeld:

–I don’t think that’s right, Your Honor.

I think that the only really relevant recent compensatory taxation law is the Oregon Waste Systems case, and as I say, the decisive fact, the Court identified as the decisive fact in that case that the two taxes were not imposed as mutually exclusive proxies for one another.

Here, the taxes are mutually exclusive proxies by definition.

They’re linked in the text of the tax statutes.

If a corporation pays income tax, then its shares are exempt from tax, from the shares tax.

If a corporation does not pay income tax, its shares are subjected to the shares tax, so they are by definition mutually exclusive proxies.

That, I think, is the first and most important evidence that the taxes are–

John Paul Stevens:

–Mr. Rothfeld, could I ask you a sort of preliminary question that I want to be sure I’m right on?

You do concede, do you not, that if the State repealed its income tax on corporate activity and merely taxed the stock of the residents at different rates, depending on whether the corporation did business out of State on the one hand or was a local corporation on the other, that that would be invalid?

Charles A. Rothfeld:

–Well, as your initial question to my colleague suggested, I think the Court has never actually squarely resolved that, and it is arguable that, given the nature of intangible property, this is something we can get to in the apportionment part of our argument.

It is conceivable that duplicative taxation, those intangibles would be permissible, and that principle might also suggest that discriminatory taxation–

John Paul Stevens:

But you really haven’t argued that.

Charles A. Rothfeld:

–We have not made that argument.

We have argued on the assumption that there is a discrimination within the meaning of the Court’s cases, that there is a compensatory tax that overcomes that discrimination.

I think one should look to the three parts of the compensatory tax test that the Court has identified.

It has asked that the taxpayer… that the State identify the intrastate tax burden for which it is trying to compensate.

Here, that is clearly the income tax.

It has asked that the taxes be shown to be a roughly equivalent amount.

Here, the North Carolina supreme court demonstrated that in its opinion, pages 12 to 14, the petition… the appendix to the petition for certiorari to the North Carolina supreme court ran through an analysis showing that the actual dollar amounts imposed–

Stephen G. Breyer:

I’m beginning to see something in what you say, that this is a… the State has a use tax, say 4 percent, on refrigerators bought out of State.

Can it charge that use tax if I go… say you have that in North Carolina.

I buy my refrigerator in New York, and I have to pay a New York sales tax.

Do I have to pay the New York sales tax of 4 percent, then take the refrigerator back to North Carolina and also pay the use tax?

Charles A. Rothfeld:

–Well, probably not, Your Honor, although the Court has never squarely resolved in a holding that–

Stephen G. Breyer:

If that were so, I could understand why you have this income tax argument.

Charles A. Rothfeld:

–Right, but let me say–

Stephen G. Breyer:

It’s not so, or it is so, in your opinion?

Charles A. Rothfeld:

–Well, I think it is an open question, and–

Anthony M. Kennedy:

Most States allow for the rebate.

Charles A. Rothfeld:

–Virtually all States do, but I think this is an important point–

Sandra Day O’Connor:

And when this Court addressed it, it was in the context of a credit situation, was it not?

Charles A. Rothfeld:

–The Court in Jefferson Lines very strongly suggested that such a credit would be necessary, but I think that that–

Anthony M. Kennedy:

So that if you were a betting man, you would know the answer to the open question.

Charles A. Rothfeld:

–Oh, I–

[Laughter]

Fortunately I am not a betting man, Your Honor, so I guess that gives me the right not to express an opinion on how that would be… on the outcome.

But assuming that such a credit would be necessary in the sales and use tax situation, and I will assume that for purposes of answering your question–

Stephen G. Breyer:

Can I ask you a question about your other argument?

If you want to finish… are you finished?

Charles A. Rothfeld:

–Well, I think that the outcome would be different here.

Even if a credit is necessary there, we think that because this is a tax on intangible property, there’s a different outcome here.

The reason that the credit is required, if it is required in that situation, is the apportionment requirement, not the nondiscrimination requirement of the Commerce Clause.

It’s an internal consistency problem, and apportionment and internal consistency go to the question of whether the State is taking more than its fair share of the value from any one transaction, more than its fair share of any tax value, and the Court has said in Jefferson Lines that a failure of internal consistency is… as a general matter shows that one State is taking more than its fair share.

That’s the problem generally with duplicative taxation, that two States are taxing the same thing, each taking 100 percent of the value, which might be the situation you hypothesized, the sales and use tax.

Then we assume that one State is taking… or perhaps both States are taking more than their fair share.

But the Court has said that principle does not apply to the taxation of intangible property, and while with income one can see where the inputs that go to the creation of income are located and apportion taxing authority over that income accordingly, one can see where tangible property is located and can assign taxing authority to the States of that location, the Court has said, and I’m here quoting from the Court’s opinion in Curry v. McCanless which was written by Justice Stone, and it’s very closely associated with that element of the Court’s modern due process doctrine… or modern Commerce Clause doctrine.

The Court has said that very different consideration is both theoretical and practical applied in the taxation of intangible property, and that is because it is impossible to identify a single location for something that has no physical characteristics and that is intimately associated with the laws in more than one State, and the Court–

David H. Souter:

But how can you rely on that kind of an analysis when in your earlier breath you stood here and told us that the State’s theory in effect is that this intangible is, in fact, a surrogate, and for purposes of Commerce Clause analysis somehow can be identified with the income of the corporations?

If we accept that analysis, then we, I suppose, should not give any kind of special status to the taxation of the intangible here, and if we accept that analysis, it seems to me that backs you right into the internal inconsistency, because on that analysis, if all States enact the same tax there’s going to be more than 100 percent of taxation on the identical segment of value, or the identical event.

I mean, you can’t have it both ways.

Charles A. Rothfeld:

–I would strive to make my arguments not internally inconsistent themselves, Your Honor.

It is certainly our position that the values reached by the income tax and the shares tax are substantially related within the meaning of compensatory tax doctrine in the Oregon Waste Systems decision, but we do not say that the shares tax is, in fact, a tax on income.

It’s a tax on the ownership of intangible property, and as the Court has said, even though substantially related values are reached by two taxes, the constitutionality of the tax, and indeed the apportionability of the tax, may turn on the form in which the tax is pleased, the legal incidence of the tax, the nature of the tax–

David H. Souter:

Well, if the form is going to govern, then it seems to me you’ve got a different problem, and that is the problem of compensatory taxation, supposedly, but involving different classes of taxpayers, and to the best of my knowledge, unless you rely on Darnell, we have never applied the analysis under those circumstances.

Charles A. Rothfeld:

–Well–

David H. Souter:

Isn’t that true?

Charles A. Rothfeld:

–Well–

David H. Souter:

Maybe I’m overlooking something.

Charles A. Rothfeld:

–Well, I think, I mean, the sale and use tax situation, one tax is imposed upon–

David H. Souter:

The buyer of the property is… the class of buyers is the only class that’s being taxed.

Here, to the extent that you cut the ownership of shares adrift from the corporation and its earned income, you’ve got two classes of taxpayer.

Charles A. Rothfeld:

–Well, I think many States like North Carolina impose the legal incidence of their sales tax on the seller, whereas the legal incidence of the use tax is invariably on the buyer, so in that situation you have different categories of taxpayers, and the very first of the Court’s compensatory tax cases, Hinson v. Lott, involved a tax on… one tax on distillers, another tax on distributors and dealers in liquor, so there are different categories who can be subject to the tax.

I think… I mean, the way that the Court has described the compensatory tax doctrine has not required precise equivalents on every aspect of the tax, has not required that the taxes be graphed and all the peaks and valleys match exactly, as long as the ultimate burden on interstate and intrastate commerce match up.

And indeed, the way the Court has described the compensatory tax doctrine in the Oregon Wastes Systems case is that the taxes must be substantially similar, not that they must be identical, which mirrors the language very closely in the Darnell case upon which we rely that their taxes must be consistent with substantial equality, so I don’t think that we have to find precision to satisfy the compensatory tax–

David H. Souter:

The only substantial equality we’ve ever recognized is between sales and use, isn’t it?

Charles A. Rothfeld:

–Well, I guess that depends in part upon the–

David H. Souter:

Darnell.

Charles A. Rothfeld:

–Darnell.

Alaska Maid was not a question–

David H. Souter:

Darnell was a case that precedes modern compensatory taxation analysis, so that the question is, do we subsume Darnell under the modern law, that Darnell was not applying anything like the modern law, was it?

Charles A. Rothfeld:

–Well, I think that it was, Your Honor.

I think that… as I say, the Court in Hinson v. Lott, the case that this Court cited in Oregon Waste Systems decision as the genesis of the compensatory tax doctrine, long preceded Darnell, and the language the Court used in Darnell is similar, substantially similar to the language that it uses in the Oregon Waste Systems case, so there’s no reason to think the Court was applying different standards.

In any event, in Oregon Waste Systems, the Court’s most recent decision, it referred… has used the language of substantial similarity, and not precision.

I think the point of the doctrine is not a formalism that’s designed to match up the taxes, as I say, at every point.

The idea of the doctrine is to be sure that interstate commerce is not being disadvantaged, ultimately, in contrast to intrastate commerce, and I think we can demonstrate to you that as a matter of economic reality, that that is not happening.

But to return to the question of apportionment, and in terms of consistency, which I think is a crucial question here, and whether or not this should be treated as an intangible property tax and an income tax, the fact is, this is an intangible property tax.

As in Jefferson Lines, the fact that the tax is put in that form may determine whether or not it’s apportionable, and if… look at it this way.

The taxpayer’s complaint here, ultimately, on the apportionment part of the argument, is that its values are being subjected, or could be subjected to duplicative taxation in other States.

If we’re right about the treatment of intangible property, and we think that the Court’s holding on that are absolutely clear, then if this precise tax, this precise shares tax on 100 percent of the value, were replicated in some other State, he would have no complaint.

The taxpayer would have no complaint because of that duplicative taxation.

So if other States had shares taxes at 100 percent of value, there would be no complaint by the taxpayer here.

The fact that the State had income taxes and that is a duplicative taxation because of the substantial similar value shouldn’t give him more of a complaint than he has now, and I think Jefferson Lines is very good authority on that point, that one looks to the nature of the taxes being challenged.

Even though the economic effect of the tax, economic reality of the tax may be similar to a tax that has to be apportioned, the fact that the tax is put in forms that does not require apportionment should be dispositive.

So I think ultimately for the Court to rule for the taxpayer in this case, it clearly would have to overrule Darnell v. Indiana, which we think is clearly on point, it would have to set aside the precedents holding that duplicative taxation of intangible property is permissible.

It would also, we think, have to cut back on the principle and say intrastate commerce can be made to pay its own way and need not be placed in a favored position, because if the taxpayer’s position here prevails, the State will have to either impose duplicative taxation of intrastate commerce, which is clearly, as an historical matter, what it was trying to avoid, or it will have to abandon any taxation of intangibles altogether, which means it will have to give up the chance to tax values that clearly are present in the State and that it has a right to tax.

There is no reason for the Court to take such a substantial step in the decision, and the North Carolina supreme court therefore should be affirmed.

If there are no further questions–

William H. Rehnquist:

Thank you, Mr. Rothfeld.

Charles A. Rothfeld:

–Thank you very much.

William H. Rehnquist:

Mr. Cummings, you have 2 minutes remaining.

Jasper L. Cummings, Jr.:

If this Court finds for Fulton Corporation, I would request that the Court in its decision give some indication of the application of its decision to the 1990 tax year issue.

The reason for my concern is that the only decision we have below, which was a decision of the North Carolina court of appeals, which ruled for Fulton Corporation and found the tax to be unconstitutional, postponed the effective date of its decision for a year-and-a-half after the date of the decision, and therefore Fulton Corporation received no remedy.

We moved before that court for rehearing on the basis of this Court’s decision in Harper v. Virginia, which expressed a very strong desire for–

John Paul Stevens:

Yes, but is it not clear that they have an alternative, either doing away with the exemption or doing away with the tax?

You could lose, and you could win the legal principle and lose this in dollars.

Jasper L. Cummings, Jr.:

–I agree, yes–

Yes.

Jasper L. Cummings, Jr.:

–Your Honor, but I would like to make sure that they… that the State makes that decision either to do away… either to make everyone pay the full tax on stock they… in 1990 forward, or to give refunds.

Thank you, sir.

Ruth Bader Ginsburg:

You agree that there could be a retroactive imposition of a tax on people who had no notice at the time that the tax liability accrued?

Jasper L. Cummings, Jr.:

This… yes, Your Honor.

This Court many times has indicated that is a theoretical possibility.

Ruth Bader Ginsburg:

And they said that without the party affected before the Court.

Jasper L. Cummings, Jr.:

I’m never aware of that having actually been done, and I would not expect it to be done in North Carolina.

I think all we’re talking about here is refunds.

Thank you.

William H. Rehnquist:

Thank you, Mr. Cummings.

The case is submitted.