General Motors Corporation v. Washington – Oral Argument – February 26, 1964 (Part 2)

Media for General Motors Corporation v. Washington

Audio Transcription for Oral Argument – February 26, 1964 (Part 1) in General Motors Corporation v. Washington

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Donald K. Barnes:

— but couldn’t before the recess in response to Mr. Justice White’s question is that our judgment, and Mr. Justice Black’s question, as to the policy of paying this type of tax when there is a zone office operating within the jurisdiction has been confirmed by this Court in the Norton decision and perhaps in the Field Enterprises case in which this Court affirmed per curiam.

Byron R. White:

(Inaudible)

Donald K. Barnes:

Yes, Mr. Justice White.

Each of those cases involved that type of tax.

Field Enterprises of course was the same tax.

Now, the — these zone offices, as distinguished from the one-man branch office I’ve mentioned before, do perform some intrastate functions.

They do receive and accept some orders.

And we — we cannot claim that they are not in intrastate commerce as well as the interstate with which we are here concerned.

That being the case, under the Norton rule, the whole thing becomes taxable.

I say we did that before this — this Court decided Norton.

But since Norton, there isn’t any doubt we’ll continue to do it.

And I want to mention due process.

Now, if, as the statute says, the taxes on the business of making sales, the transactions are outside the jurisdiction for the reason that every element of the sale takes place outside the jurisdiction.

And although, the unconstitutionality of this type of exaction is now customarily attributed to the Due Process Clause, I point out that the same result was achieved on numerous occasions before the due — the Fourteenth Amendment was ever enacted or ever adapted, on the basic principle that state power is confined to its own territory.

And the best exposition of that principle was by Mr. Justice John Marshall Harlan in New York, Lake Erie and Western Railway against the Pennsylvania as far back as 1889, it doesn’t come up since because the Due Process Clause was intervened.

But if, on the other hand, as the Washington court says, this tax is on local activities, that is the district managers running around within the State.

Its measure is grossly disproportion.

It is simply incredible that a tax of several hundred thousand dollars could be incurred by the activities of a few employees and then tax much more than their aggregate salaries and so on.

And the tax would be the same if there were only one employee in the State or if there were several thousands.

It’s wholly unrelated also to time spent, things done or property used in the State and it’s wholly unrelated to any protection, benefits or service which the State provides to our activities, related quantity, I mean.

It is not true, as the Washington court assumed, that once you find something that you can pin on — pin onto as a taxable instrument that the measure of the tax is wholly irrelevant.

Due process requires that the measure still have some relation to the size of the activity.

There would be no objection under due process, as distinguished from interstate commerce, to a tax reasonably related quantitatively to instate activities.

For example, the employment tax of Washington is paid with respect to these employees.

There, there’s a reasonable relation that tax is a percentage of the employees’ salary and the benefits from that tax will be unemployment benefits if any of these people are thrown out of business by the activities of our competitors, will be paid to them by the State of Washington, where they live and work.

But the reason for this tax is the customers themselves and not any taxable activity within the State, and I’d like to reserve the balance of my time.

Earl Warren:

Mr. Riley.

John W. Riley:

Mr. Chief Justice and Associate Justices, may it please the Court.

I find that it might — we — it’s desirable from the State’s standpoint to review briefly what it is that the State reports to tax.

And then I’d like to approach the question of the characterization of the tax and consider its measure and then answer Mr. Barnes’ due process contentions.

John W. Riley:

Mr. Barnes’ statement of facts has emphasized primarily that which General Motors does without the State and it seems to me, he lends very little emphasis upon that which they do conduct within the State.

He concedes that there are manufacturer.

But for some reason, they will not admit that they’re also engaged in wholesaling activities within the State.

And we insist that the facts in this record here, which are quite extensive, they are unique and they are quite detailed, illustrate fully and adequately that the tax fair did in this audit periods here in question engaged in continuous and detailed and systematic business activities within the State.

Byron R. White:

Mr. Riley, you’re — I take it that you say that whatever the activities of the General Motors are in the State of Washington, they — they are equivalent to — to — there must be some wholesale sales in the State under your statute I guess.

John W. Riley:

Well, that relates to the incidence of the tax.

The incidence of the tax is on the act or privilege of engaging in business activities, and then under the act, there are a great number of categories —

Byron R. White:

Yes.

John W. Riley:

— manufacturing, wholesaling, retailing —

Byron R. White:

Yes.

John W. Riley:

— services, lawyers, pay the tax and so forth.

The measure —

Byron R. White:

What is the measure of wholesale sales or the wholesaling?

John W. Riley:

The measure — the measure is the — is the proceeds of the sales resulting from the business activity.

And the measure I might say — the point I’d like to develop later.

Hugo L. Black:

(Inaudible)

John W. Riley:

Yes, Mr. Justice Black.

That is correct.

Hugo L. Black:

(Inaudible)

John W. Riley:

Yes, Your Honor.

Hugo L. Black:

Does involve this tax?

John W. Riley:

This specific tax.

Yes, Your Honor.

And we think it is quite significant in this case.

Very similar we believe in all respects.

Hugo L. Black:

There was an office.

John W. Riley:

There was an office, Your Honor, which was — they had a — a great number of salesmen in Field Enterprises within the State who were soliciting orders.

None of the orders were accepted within the State.

They were all accepted and filled outside the State, points that are similar to this case.

The salesmen were directed from this office by a manager and several assistants and secretaries.

Byron R. White:

So they had actually — they had salesmen working out of the office in Field Enterprise.

John W. Riley:

Well, the salesmen didn’t actually work out of the office.

They — they were directed from the office.

I — I don’t believe it’s —

Byron R. White:

But they did have salesmen soliciting sales in the — in the State.

John W. Riley:

They had salesman engaged in all types of promotional activities.

I don’t think the analysis of that case would lend itself to the conclusion that they were soliciting sales.

They were promoting sales.

They were soliciting customers.

They were transmitting orders outside the State where they are accepted, I guess.

Byron R. White:

Well, that isn’t done in here, in this case, isn’t it?

John W. Riley:

In this case, Your Honor, we contend that it is.

And I’d like to approach that indirectly.

And it — it’s done in this manner.

First of all, we — Mr. Barnes has discussed in considerable detail, the instate activities of the resident district managers and service managers and parts managers.

These gentlemen, as it has been pointed out, laid their primary emphasis on the details of the retail dealership.

They have from 12 to 30 not 30 to 40 dealers, I think the record shows.

And they spend all of their time with them.

Now, there are, of course, other instate activities of personnel who do not reside in the State and there are also other activities of other divisions which I’d like to touch.

But turning, for the moment, to your specific question, Mr. Justice White, the manner in which we — sales are solicited if — if I may use that term in — quite broadly.

The whole object, and the record discloses this and we’ve cited numerous references to the record, that the whole object of the activity, principally of these resident district managers, of whom there were some 27 for the three divisions with which you were concerned, is to obtain for the divisions concerned there share of the market.

And they did it by working with the dealers and forcing and seeking compliance with the detailed terms of the retail dealer selling agreement, which we think is a very significant document.

And they do it initially at the beginning of the year with the dealer by determining what that dealer’s sales objective for his geographical zone.

These dealers have a geographical zone.

They’re all stationed all around in strategic market areas of the State.

The State has a sales objective.

You — I don’t like — I can’t call other code.

I was never ever able in examining the various witnesses to get them to admit that it was a code but it is a sales objective.

And this is reduced in to sales objectives for a district and is reduced then to sales objectives for the particular member or retail dealer, member of the dealer organization.

And it is then administered by the district manager as it is stated in the trial court.

John W. Riley:

They counsel and advised him, if he isn’t coming up to his projections so that he does come up to his projections.

And these projections come in the form of an exhibit, I believe its Exhibit 11, which will be found in the record.

William O. Douglas:

(Inaudible)

John W. Riley:

Yes, indeed.

And they’re constantly —

William O. Douglas:

That’s the whole (Voice Overlap) —

John W. Riley:

— striving to develop their share of the market.

Record 407, Exhibit 11, shows the form of sales projection.

And in the zone office manual which is reproduced in the record, it is stated that this have the form and effect though they’re not classically in order.

You can’t take the thing out and see ordered by and paid for and so on and so forth.

It is to be treated as an order and it state it so specifically in the General Motors Zone Office Manual.

The orders about which we’ve been talking here, which the dealer later fills out and sends in to the Portland zone or back to Detroit or down to California, as a little form which is in the record, to designate the color and the type of accessories for a particular automobile included in a previously submitted sales projection which is Exhibit 11 Record 4.

This whole process of counseling and advising the dealers, seeking compliance with their inventory program, what could be more essential and what could be more like wholesaling than seeing that the dealer has in his stock, in his parts inventory, the parts program and — and the requisite quantity of parts so as to comply with the General Motors Parts program.

This is a detail in the zone office manuals and the procedures board are detailed in the exhibits and in the record here.

It goes farther than that.

It includes training of retail dealer salesmen, sales meetings periodically through the year.

It includes training of the dealers’ mechanics so they can give better service at the retail.

And this is a manner in which they complete their wholesale sales and they develop their market.

Primary emphasis is made in the retail dealership as the Supreme Court of the State of Washington said these activities pervade virtually every aspect of the retail dealers operation.

This is part and parcel of the so-called “strong retail dealer” or “quality dealer program”, which General Motors maintains and has maintained throughout the other periods here in question.

They even counsel and advise as to the quantity of capital they have to have.

They had used car managers who counsel and advise the dealers to turn over used-cars and how to recondition used-cards because it’s a statistic fact, as one of the witnesses said that the greater the volume of used-car sales, you have more capital for new car sales.

Now — now, perhaps they’ve omitted a great many other types of activity of this instate personnel.

The retail — incidentally, these district mangers, I believe the record shows, all reside within the State of Washington with the exception of those who have districts along the border and a district then may overlap the Columbia River and have a county in Oregon and a county in Washington and he may have the dealers in two — have dealers in two States.

These then are some of the activities engaged in by resident personnel instate within the State of Washington.

Now, those district managers incidentally used their homes.

They have a telephone number at home but they — for most part, work out the dealers’ place of business according to our witnesses.

Now, there are great — and many other activities I have included in my previous discussions.

Some of the functions of people who are members of the zone office staff across the river in Portland.

These staffs, I believe Mr. Barnes gave you the figures, the number of people that were there, have a number of personnel which they have an assistant business manager.

John W. Riley:

He comes in and out of a dealer’s place of business and works with the accountants to help him in his accounting problems to see that the forms that General Motors requires are submitted in the proper manner.

Tom C. Clark:

From — from Oregon.

John W. Riley:

From Oregon.

The point is, Mr. Justice Clark, General Motors wants us to discount and to disregard entirely instate activities of these people from out-of-state.

We submit that it’s not just the instate activity of the instate residence but also instate act.

We can also consider and should consider instate activity of non-resident personnel.

And it can’t be totally disregarded just because they happen to have their office across the river in Portland.

And all of these activities lend themselves and are part of this wholesaling process.

And they all have contact with the sales through the extent, they all — meaning these activities, all have contacts with the ultimate objective of consummating sales and — and are all related to the wholesaling process and are all instate activities.

The significance of this dealer agreement, the dealer selling agreement or contract, call it what you will, and Mr. Barnes refers to it as having been accepted and executed out — out of the State.

But the significance of it is, is it by its very nature, it has to be performed in the State of Washington, and it is administered principally within the State of Washington.

And now, it’s true, of course, if the dealer goes down to Portland and sits down on the zone manager’s office, which they frequently do, well, we can’t purport to tax that.

And we’re not concerned about that, we’re concerned only with those acts that are performed within the State.

So far then, instate personnel who reside there and out-of-state personnel who frequently stay, incidentally in terms of population, this out-of-state personnel would come in the State of the zone that was described by Mr. Barnes that population wise, half of the population of that area is in the State of Washington, so that it might be concluded that most of those people spend proportion amounts of their time in the State.

Of course, that isn’t exactly true either but their responsibilities and their efforts to the extent that they are performed within the State would run in that proportion to the State.

(Inaudible)

John W. Riley:

Many of them are in retail dealerships, Your Honor, and many of them are in hotels.

They — it depends upon the type of the showing if its — one of the record — discussions in the testimony was that it if it say new cars showing while they will have them in two places within the State, sometimes, some of the dealers within the State will go down to Oregon.

There will be training sessions for dealer mechanics maybe in Oregon and maybe in the State.

And — and many times it’s within dealers’ place of business.

There are many times there are meetings within a district so that the dealers or the salesmen within a district, attend a sales training session within a district.

(Inaudible)

John W. Riley:

There are most of the times, were no — were no fixed places.

No, Your Honor.

Now, we have a number of other divisions of the General Motors organization which do have physical facilities within a state.

We were unable, at the time of trial, to amplify their activities and to develop the significance of those activities with respect to the activities of the three divisions that we have here, several of them were described, one is General Motors Acceptance Corporation, one is Motors Insurance Corporation, one is Motors Holding Division, one is United Motors Service Division, and I shouldn’t have said Motors Insurance Corporation or Motors Holding Division that this because it never had an office within the State.

But it does come into play because in the process maintaining and developing this retail dealer organization, occasionally what is known in the trade as an “open point” will occur.

And it’s necessary to get a dealer in there to occupy that geographical area and to obtain, using the terms of the trade again, they’re share of the market which General Motors thinks it ought to have or the Chevrolet Division of General Motors or whatever the case might be.

And during that — at the time of the deposition of Chevrolet, Pontiac and Oldsmobile people, from one to three dealerships, were being financed by a Motors Holding Division of General Motors and the — that works by — Motors Holding Division holding about 50% of the stock, I presume 51% of the stock of these particular dealerships to assist it in its financing and to assist it to become eventually, I presume, independent but another effort which can hardly be not essential, certainly is directly related to the consummation of wholesale transactions.

Now, returning to a moment to this other —

Byron R. White:

(Inaudible) — if these — if these representatives did not live in the State of Washington, all lived in Oregon and just went into Washington and came back, and I suppose you’d make the same argument, wouldn’t you?

John W. Riley:

I would, Mr. Justice —

Byron R. White:

Yes.

John W. Riley:

— White, because —

Byron R. White:

And will you make the same argument to all State over in Portland and did it by phone?

John W. Riley:

Well, perhaps, not.

At some point, you have to exceed the minimum, say of Nippert versus Richmond.

In its brief, General Motors really wants to characterize its activities as occasional forays into the State of Washington.

And if you don’t exceed that minimum, well, presumably, we’d be precluded from taxation by —

Byron R. White:

And how many — how many —

John W. Riley:

— by that.

Byron R. White:

— Pontiac’s are sold in Washington in the year it is supposed?

John W. Riley:

I’m — I’m sorry, I wouldn’t have any idea as to the —

Byron R. White:

But you —

John W. Riley:

— numbers, Your Honor.

Byron R. White:

— but you are suggesting though that the entire gross income from the wholesale sales of Pontiac must be attributed to the State of Washington as having occurred in the State of Washington and subjected to your tax by the activities of three people.

John W. Riley:

Of — of three resident personnel?

Byron R. White:

That’s all.

John W. Riley:

At least three —

Byron R. White:

That’s all, isn’t it?

John W. Riley:

Oh, I — I insist.

Byron R. White:

I’m talking about Pontiac.

John W. Riley:

Oh, I’m talking about Pontiac also.

Byron R. White:

I’m not talking about Chevrolet or anybody else, its Pontiac.

John W. Riley:

I’m talking also about Pontiac.

In addition to the three resident personnel of Pontiac, we have at least three non-resident personnel who come in from the Portland zone office, and we have other contributions made by other divisions of General Motors to which I will now direct myself.

That, I believe, is systematic and continuous enough to meet the Nippert versus Richmond rule.

Just those first six individual as I mentioned, and I’ll admit that it is very, perhaps, close to the line.

But it is systemic and it is continuous and it is effective and it is necessary and essential to the consummation of the sales by which the tax is measured.

But there are other contributions as well that I don’t think should be discounted.

John W. Riley:

For instance, what could be —

Byron R. White:

Why do you it’s necessary to the consummation of the sales so far as you can know the sales that have taken place anyway?

John W. Riley:

If a sale is consummated or is made to a resident of the State of Washington which with those activities had nothing to do, it will not be included in the measure of the tax.

If —

Byron R. White:

So that — if — if General Motors could show that these three — and none of these three — of these six people ever visited or talked to a particular Pontiac dealer during the year, you would not include those — those sales to that dealer, is that it?

John W. Riley:

I’m afraid we couldn’t, in that example.

If — if Pontiac made a fleet sale of 100 automobiles to a particular corporation and — it was conducted all in Oregon or all in Detroit, we couldn’t include those 100 automobiles in the measure of the tax and would not.

This is established by the Norton decision and is established by Field Enterprise and is established by the Goodrich case and the Horsman case.

Excuse me, Your Honor.

Earl Warren:

(Inaudible) would you — would you finish that.

You’re starting to tell us some additional factors that were in this case.

I was interested in that.

John W. Riley:

Additional instate activities of other divisions which are essential to and are — the maintenance of this operation and are essential to the acquisition of General Motors’ share of the market as it’s — for instance, what can be more essential than the actual financing of the merchandise on a dealer showroom floor?

Tom C. Clark:

(Inaudible)

John W. Riley:

Those activities of General Motors Acceptance Corporation to the extent that it’s measured by its income from financing or tax, to be sure, Your Honor.

We are submitting, however, that these efforts of these other divisions, even United Motor Service Division, even the Parts warehouse, all contribute to the development and the establishment and the acquisition of its share of the market and in the end run, the consummation of this wholesale sales by which the tax is to be measured.

United Motor Service only had one operation.

The Parts Division warehouse I believe had 17 to 20.

It varied from year to year or maybe it goes as high as 28.

But the very existence of that Parts Warehouse within the State of Washington and made it — able — made General Motors able to develop public confidence in the products, to develop reliance of the dealers, to develop the effectiveness of the dealers and to develop the very effectiveness of the efforts of these gentlemen who were residents of and were engaged entirely inside the State of Washington.

Tom C. Clark:

(Inaudible)

John W. Riley:

This warehouse has only so-called “fast moving parts”, Mr. Justice Clark, that which had to be really and able and more centrally located.

Another Parts warehouse is located in — well, those for which there’s a greater demand on a higher rate of turnover I believe, sir.

Tom C. Clark:

(Inaudible)

John W. Riley:

And of course, I don’t want to add any confusion for the — the question here by suggesting that there’s any question as to the distribution of parts out of that Parts warehouse.

General Motors, as Mr. Barnes I believe has stated, pays its tax with respect to sales from the Seattle warehouse, parts that move through the Seattle warehouse to its ultimate dealer.

We submit, however, that the efforts of the individuals, district managers included, justify and the contributions made by the Seattle parts warehouse, justify the inclusion in the measure of the tax of sales out in Portland warehouse.

I’ll develop that a little bit later when we approach the question of the measure of this tax.

Tom C. Clark:

(Inaudible)

John W. Riley:

Well, the Cadillac division, I don’t know that it’s any different the — than — than this one here, Your Honors, but I — I really can’t say.

John W. Riley:

I believe it’s probably be quite similar to Pontiac and Oldsmobile, probably, a little smaller organization.

Tom C. Clark:

And that is in some way (Inaudible)

John W. Riley:

That’s — that is true but we don’t have any sales by the Cadillac Division involved in this particular case.

I don’t know whether they’re paying the tax or have paid the tax or — or just what the question — problem is, if there’s any.

(Inaudible)

John W. Riley:

It is the same corporation, yes, Your Honor.

Well, the summation under this factual approach that I’ve tried to make, if the Court please, is that when all of these activities of General Motors personnel inside the State of Washington are considered in the light of these physical facilities described in Exhibit 13, even though they may have been independently and they do operate substantial independent of the three divisions with which we are concerned.

But the whole gamut of this activity indicates a systematic and continuous course of conduct.

And the question we have to approach is whether or not that gamut, if you will, of instate activity is immune from any kind of state taxation.

I — I’d like to begin with this premise and then I should like to direct the Court’s attention then to the question of whether the measure is by its nature offensive constitutionally and then consider the remaining due process and constitutional questions suggested by Mr. Barnes.

One preliminary problem, Mr. Barnes touched only very lightly on it in his discussion but it is in his brief, and that’s the problem of the characterization of this particular tax.

The tax is a tax on persons or corporations for the act or the privilege of engaging in business activities.

In his brief, counsel invokes the decision of this Court in Spector Motor Service versus O’Connor and in which this Court found that a tax placed — the — the tax there was placed unequivocally upon the corporation’s franchise for the privilege of curing on what the Court described as exclusively interstate transportation.

And they said, Justice Frankfurter I believe said that the tax by the state court’s own characterization impinged upon an unconstitutional channel.

And he observed that the State wasn’t precluded from opposing upon activities or aspects of the business within the State unlike the privilege of engaging an interstate transportation.

Hugo L. Black:

Mr. Riley, I — I gather you — no part of the States provide upon a set of power to levy this type of dependance upon the fact that there are, although for other division of General Motors, actual opposites of General Motors in the State of Washington.

John W. Riley:

We’ve approached in both manners, if the Court please.

We — we are willing to approach — approach it from this standpoint that — you see this local store argument is — is actually separate from the question of characterization.

I think Mr. Barnes’ real argument is that in order to include these sales in the measured tax, you have to have a local store to which those sales are channeled or funneled before it’s constitutionally proper to measure the tax by the such amounts.

We believe that that isn’t the proper test if the question is — is whether or not, the nature and extent of the instate activities and that then whether or not the sales are — are result thereof.

William J. Brennan, Jr.:

(Inaudible)

John W. Riley:

Yes, they are Your Honor.

William J. Brennan, Jr.:

(Inaudible) — and what constitute instate activity upon the location in the State of Washington of other General Motors offices, unconnected with these particular divisions.

John W. Riley:

No, we don’t.

We — we do assert and do respectively submit that their existence there does contribute to the development of this market and to the conduct to these wholesaling activities and to the extent that they do contribute that it is instate activity which maybe taxed and maybe measured in this manner.

Byron R. White:

But if Pontiac, for example, had no one in — in Washington and no one working out of Oregon network in — in Washington, it was all done by mail or by telephone (Voice Overlap) — in fact —

John W. Riley:

(Voice Overlap)

Byron R. White:

— if Chevrolet had an office and the Chevrolets were taxable business, that wouldn’t mean Pontiac was.

John W. Riley:

They were — that’s — no, that’s right.

William J. Brennan, Jr.:

That’s the second —

John W. Riley:

There would be no —

William J. Brennan, Jr.:

— that’s the second question, isn’t it?

Whether there’s any taxes between the instate activities and the wholesale.

John W. Riley:

That’s right.

William J. Brennan, Jr.:

That’s the second question.

John W. Riley:

The first question.

William J. Brennan, Jr.:

I’m still — I’m still — are you now saying that indeed, the State of Washington does rely upon the presence in the State of Washington, of other offices which have some functions in respect of the sales of Pontiacs — by the wholesales of Pontiacs and Chevrolets whatever the other thing is.

You are relying impart on that?

John W. Riley:

I will say we’re relying impart.

I don’t think it’s essentially on —

Byron R. White:

Where they — where they can actually contribute to these sales like the financing office.

John W. Riley:

Yes.

William J. Brennan, Jr.:

Well, my — why —

(Voice Overlap) the parts office, wasn’t it?

John W. Riley:

Yes, it would, Your Honors.

William J. Brennan, Jr.:

Well, if you’re doing that, why doesn’t Norton?

On the first question on the instate activities, lying aside for the moment the next is problem.

Why doesn’t — why doesn’t Norton?

John W. Riley:

We think that Norton and Field Enterprise both supports.

William J. Brennan, Jr.:

Rule in your favor in another element of the case.

John W. Riley:

Very definitely.

Tom C. Clark:

(Inaudible)

John W. Riley:

No.

Tom C. Clark:

— for GMAC separate corporation.

John W. Riley:

It is.

It is a separate corporation.

If it isn’t so (Inaudible)

John W. Riley:

Well, that raises an interesting question.

One of the cases cited by Mr. Barnes was Spector — Scripto Incorporated versus Carson, that’s a Florida case, in which independent contractors imputed presence to a corporation.

Certainly, if it were not a wholly owned subsidiary and were only a division, I could impute it.

John W. Riley:

So I see no reason why the activities of the wholly owned subsidiary even though it’s incorporated shouldn’t also be imputed and shouldn’t also contribute.

(Inaudible)

John W. Riley:

Well, true, that was a sales tax question and — however, these two imputing presence through an independent contractor certainly bares analogy to that question.

(Inaudible)

John W. Riley:

Parts were analysis in Seattle —

(Inaudible)

John W. Riley:

— in Seattle, Your Honor.

It serves the State.

John W. Riley:

It serves the State.

It also serves other — other — I think Alaska and parts of Idaho and Montana.

Now —

(Inaudible)

John W. Riley:

United Motor Service Division, Motors Insurance Corporation had three offices I believe and General Motors Acceptance Corporation.

(Inaudible)

John W. Riley:

United Motor Service, as the transcript, shows has to do with making warranty adjustments on accessories, automobiles and supplies parts and service to parts, accessories I mean.

It is a division.

John W. Riley:

It is a division, yes.

It is a division.

(Inaudible)

John W. Riley:

Parts — the parts division.

Now, the parts division is a little bit confusing awhile because they are actually serviced by the district managers and the parts and accessories personnel for the particular division by the Pontiac, Oldsmobile and Chevrolet Divisions.

And there — the efforts on — and the sales of some of these parts actually proceed from the activities of those people in administering those portions of the dealer selling agreement which require the dealer to maintain its balance inventory program which we have addressed ourselves earlier.

(Inaudible)

John W. Riley:

Yes, Your Honor.

Returning just — just for a moment on Spector, and I don’t think it deserves anything else, this — this question of characterization of the tax and it was — General Motors can persist and this relates to our disagreement with them over characterization of the tax which we have discussed in our brief but they persistently attempt to classify the — our tax as something like a tax on unapportioned tax on gross receipts from interstate commerce or a tax on the privilege of doing things done almost exclusively outside the State.

And we just insist that the Washington courts’ characterization of the tax that it is a — a tax on — after a privilege of engaging an instate activities has to stand and we think it wasn’t in fact established and is established by this Court’s affirmance of the States Supreme Courts decision in Field Enterprise, as well as in Norton.

This gamut then of local business activity by which we’ve been discussing engaged in within the State by this General Motors personnel, Pontiac, Chevrolet and Oldsmobile with the assistance of these other facilities and personnel of other divisions is — is all of that, in a nutshell, immune from any kind of state taxation and I — I asked the Court to consider that question preliminary and then I would like to address myself to the measure question.

Initially, certainly, there is, I don’t think it can be denied, an incident of state taxation and that it is not a pure interstate commerce or interstate commerce per se in the nature of Nippert versus Richmond.

And the reason being, as I have stated early that this is a systematic and a continuous course of conduct and it results in a large volume of business.

And again, I think that Field Enterprises certainly establishes the fact as does Norton that it’s not an — so — so much a part of interstate commerce that — that it is immune.

John W. Riley:

So there’s a taxable incident.

Now then, is the measure of the Washington tax somehow make this tax or the manner which it is operated repugnant or is it put it outside the pail of this various constitutional limitations?

I think, it should be noted that the measure of the tax is the same for all wholesalers doing business in the State of Washington.

This is shown by Goodrich.

The measure results in a tax, if you please, which is proportional to the results of this sales efforts and this wholesaling activities engaged in within the State as contrasted to the situation in Nippert versus Richmond, the flatfeet situation.

And as I’ve mentioned earlier and as illustrated by our State Supreme Court’s decision in the Goodrich Rubber case as well as Norton and Goodrich, the State Supreme Court applied this — diligently, I might add, this Court’s decision in Norton.

So that the measure of the tax, and we — as we said earlier, excludes any transactions or sales, if you will, to a Washington customer with which the tax payers’ instate activity had nothing to do.

I think this is made abundantly clear by Goodrich.

Hugo L. Black:

(Inaudible)

John W. Riley:

Well, Your Honor, you mean in all of the tax here?

Hugo L. Black:

Yes.

John W. Riley:

Actually, not.

Hugo L. Black:

That made — that made an indication over the amount (Voice Overlap) —

John W. Riley:

No, Your Honor, we are able to agree that if —

Hugo L. Black:

That it’s out of proportion to the — to the — whether the State had a right to tax to them.

John W. Riley:

Well, that’s — that’s counsels due process argument that it is out of proportion to the benefits which the State is conferred.

Hugo L. Black:

(Voice Overlap) has been — did the Court find how much, regardless of the name and regardless of the method of taxing, what was found with reference to that being a fair tax along with all the other taxes?

John W. Riley:

Well, the State Supreme Court has held and — and did declare in their review that the — the tax, this is a confusing measure of the incidence, but the tax was reasonably related and they disposed of counsel’s contention that it is — does not bare reasonable relationship in that manner.

Does that answer you question, Your Honor?

There —

Hugo L. Black:

But I think it does — some of our —

John W. Riley:

That is the due process.

Hugo L. Black:

— some of our cases have said that so long as the — although this has been a deviation of some minor respects, so long as the entire tax imposed on the company doing business in the States is not out of proportion to what is a fair and just approximation points activities of the State, not to be subside because of the label quite a bit fair or the —

John W. Riley:

I think that’s right.

Hugo L. Black:

— given thoughts of the imposition of the tax with some respect.

John W. Riley:

That — that is our view.

Hugo L. Black:

The litigation has no — I — I found no direct challenge to the amount of the tax in connection with all of — and other taxes imposed against General Motors in —

John W. Riley:

All of the tax —

Hugo L. Black:

— connection with the right of Washington to impose a tax on the company or to its activities.

John W. Riley:

They — they assert, first, that the tax is on interstate commerce and secondly, they assert that all of these sales are out-of-state or not related to a sufficient quantity of instate activity and don’t —

Hugo L. Black:

That —

John W. Riley:

— pass through a local store.

Hugo L. Black:

— that’s a question of fact, is it not, that — whether it’s related to inter — intrastate activities or interstate?

John W. Riley:

That’s true, but also — also the question of law.

Let me address my —

Potter Stewart:

There — there is an attack on the amount of this tax very clearly by the (Voice Overlap) —

John W. Riley:

They — they assert that the tax — none of the — none of these transactions, Your Honor, that General Motors is —

Potter Stewart:

No, no, not the assessment attack on the amount of the taxes, I understood it that — that I was a — it’s a due process attack that the — that the amount of a tax bares no relationship whatsoever to the kind or amount of business done as a whole (Voice Overlap) —

John W. Riley:

Well, that’s true.

Yes Your Honor.

Potter Stewart:

— of the State.

That’s a directive attack upon the amount of the tax as such.

John W. Riley:

I’m sorry, then I misunderstood Justice Black’s inquiry.

Hugo L. Black:

I must fight the difference that I think, I’m not sure, maybe possible and you can argue that the tax imposed by a certain purpose is too much for that particular purpose.

But there’s also a question and had been treated in some cases, whether you take that tax, add to it all the other taxes of General Motors or a company as a whole.

It is more than the State’s entitled to impose for all the activities the company engages within a State.

John W. Riley:

Well, I don’t understand that to be raised here, Your Honor.

The one that Mr. Justice —

Byron R. White:

Yes.

John W. Riley:

— Stewart raised is the argument.

Now, one other thing regarding this measure, I think it’s a — while we contend that those sales which are related to these instate activities can be — be a proper measure to tax.

The alternative is, and I think this is made quite clear by this Court’s decisions in Gwin, White & Prince and Henneford, is that no other State may measure a tax by the same measure and by the gross proceeds of those sales.

And Mr. Barnes’ statement to the contrary, I just not — I just do not believe will stand examination because Gwin, White & Prince and Henneford and other cases before and since make it quite clear that no other State can subject General Motors to a wholesaling activity.

Gwin, White & Prince and Henneford was a case from the State of Washington involving the same tax.

Only it was with respect to outgoing sales by a producer state.

Byron R. White:

(Inaudible)

John W. Riley:

Simply because — it’s one of the reasons Gwin, White & Prince and Henneford says they cannot.

Byron R. White:

Well —

John W. Riley:

They can —

Byron R. White:

(Inaudible)

John W. Riley:

Not in the light of Gwin, White & Prince and Henneford, Your Honor.

Byron R. White:

(Inaudible)

John W. Riley:

Well, at — no it isn’t.

I’ll — I’ll — they want for one good reason, wholesaling —

Byron R. White:

(Inaudible) — first then you wouldn’t be here.

You wouldn’t try to attempt to put your tax.

John W. Riley:

Well, Oregon can no more — Oregon can no more measure a tax by sales to Washington customers than we can measure a tax by sales to Oregon customers, a wholesaling tax.

Byron R. White:

Well, the sales take place in the State of Oregon.

John W. Riley:

Well —

Byron R. White:

They take place in —

John W. Riley:

— that’s a question of (Voice Overlap) —

Byron R. White:

— takes place in the State of Oregon?

John W. Riley:

Well, then we have confused the question of measure with instance, and if you please, Mr. Justice White, because then you’re assuming that the tax is a tax on the sales and not a tax on the activities.

Byron R. White:

But no, I’m — I’m not saying that the Oregon tax would be on the privilege of making wholesale sales in the State of Oregon just like you say, precisely as you say.

John W. Riley:

But constitutionally, you — we cannot, the State of Washington cannot measure a tax on General Motors by sales to any other State and the State of Washington by the same token the State of Oregon may not measure a sale with respect to activities carried on there in — by General Motors in Oregon, may not measure it by sales to Washington customer — by the gross proceeds of sales.

Byron R. White:

You’re — you’re saying that if these sales that you have taxed, really were sales in the State of Oregon, you’re out of business.

John W. Riley:

If it was a tax on sales, we would be out of business.

Byron R. White:

(Voice Overlap) of such measure.

John W. Riley:

Alright.

If it were to — to be — but sales to Oregon customers, if there are sales to Washington customer consummated in Oregon, we will contend that we have a right to tax them, to measure the tax by them and not to tax the sales.

Hugo L. Black:

But this Court (Inaudible) imposition of tax on an activity and the right to — how much you can get?

John W. Riley:

Yes, it —

Hugo L. Black:

And measuring it by some — some standard that you look behind the standard to see whether or not there’s more tax than you have it by their president.

John W. Riley:

Well, that — that is correct, Your Honor, and that’s the reason I’ve dwelt to this length, the length that I have on this caution of measure.

And I think it’s — it’s quite important to — to note this distinction between measure and —

William O. Douglas:

Washington to levy sales tax on the Oregon sales.

John W. Riley:

No, Your Honor.

William O. Douglas:

And Oregon could.

John W. Riley:

And Oregon could if the sale we’re consummated in Oregon.

Oregon could not because the actual sale isn’t consummated there either and this particular case which is unassigned.

John W. Riley:

Now —

William O. Douglas:

Well the court — if Washington can’t levy a sales tax, I can — you say they can do the same thing with this way.

John W. Riley:

Well, this is not a sales tax.

We are measuring and — and it’s just that needed distinction.

It is a conceptual difference to be sure but as one which has been recognized by this Court in many cases.

We are taxing business activities.

We are measuring the tax by the sales which result from those business activities.

But sales only to Washington customers and not including sales to anybody else and not including sales with which those activities had nothing to do.

I think this is a — this bares this question in Mr. Barnes’ discussion earlier of the market state concept.

And he describes within his brief as, and did orally this morning, as something like when products are sold by out-of-state manufacturer to residents in the State, then that alien manufacturer has taken money out-of-state and so you should be a part of put some money back in.

We don’t think that the lower court had anything the kind in mind.

If it did, then I can’t determine it by reading the opinion, but if it did, it might well had considered the market state concept that Justice Rutledge announced in his concurring opinions in Freeman and Hewit and the International Harvester versus the Department of the Treasurer.

His — he was speaking there with the reference to difference types of taxes but the analysis still applies and he saw three alternatives in this particular situation, which — which I note that you seemed to be concerned, that first, you could prohibit all taxes unless they were apportioned or you could allow either the producer state or the market state, but not both, or you could go along determine that factual in each case.

And he said, in those opinions, he said, “I think the solution most nearly in accord with the Commerce Clause that once most consistent with its — at least most consistent with its purpose and least objectionable for producing other evils would be the vested power tax in a state of market subject to the power of the forwarding state, also the tax by allowing credit to the full amount of any tax paid or do at the destination.”

Now, when Justice Rutledge was speaking, Norton and Field hadn’t been decided and I think it would be well in this particular case if this Court did specifically invoke what Justice Rutledge was saying there, although we’re not talking about taxing sales.

As a matter of fact, this Court may have — we believe that you already have done so in view of the decisions in Norton and Field.

Because in the first place, the producer states, because of the doctrine of Gwin, White & Prince and Henneford in subsequent decisions, cannot measure the tax by sales towards any customers any more than we can measure tax of — GM by it’s sales to Oregon customers.

And the third alternative would be a little bit intolerable for the Court.

Now then, a question has been raised about the —

Byron R. White:

(Inaudible) by its total of manufacturing sales, including the sales to Washington customers.

John W. Riley:

It may impose a tax on manufacturing quite literally.

Byron R. White:

Measured by —

John W. Riley:

Measured by gross receipts.

Byron R. White:

— measured by gross receipts from sales to Washington customers.

John W. Riley:

Measured by gross receipts to Washington customers.

Byron R. White:

I thought that’s what you said couldn’t be done.

John W. Riley:

The tax is on manufacturing and I think they have a right to tax manufacturing and I think it — that that’s been established, American Manufacturing versus St. Louis.

By the same token —

Hugo L. Black:

(Inaudible)

John W. Riley:

I beg your pardon?

Hugo L. Black:

Does American Manufacturing Company against St. Louis has been the rule ever since, doesn’t it?

John W. Riley:

Sure, they —

Hugo L. Black:

Except for the possibly slight deviation in Spector that you don’t look to see that the object just to see whether the amount of the tax, however it is measured, is unconstitutional.

John W. Riley:

With respect to due process.

Hugo L. Black:

That’s right.

John W. Riley:

With respect to due process.

They are manufacturers but they’re also wholesalers.

And if manufacturing is separable from interstate commerce and can be taxed, so can the wholesaling process or instate business activities within the State and Norton and Field clearly established that.

Byron R. White:

(Inaudible)

John W. Riley:

They cannot.

First, we’re not taxing sales.

No, I — I — fairly, I’m not making myself clear, Mr. Justice White, that —

Hugo L. Black:

You’re measuring your tax by the amount of the sales.

John W. Riley:

To Washington?

Hugo L. Black:

And it is to say that what you were arguing here is that supposed, the tax as measured that way is $1000, instead of that, you have said $1000, you were saying that its constitutionality is determined, you are — you determined its constitutionality by the amount of tax sales, not by the particular means to take to measure it.

John W. Riley:

I — well, I — on the due process question, yes.

Hugo L. Black:

That’s what I’m talking about.

John W. Riley:

Well, Mr. Justice White is on this Interstate Commerce Clause.

Hugo L. Black:

So what about the burden on — on — the burden on interstate commerce?

John W. Riley:

I don’t see a burden on interstate commerce.

Hugo L. Black:

But, suppose if that is the question at all, the burden on interstate commerce, which is the theory of the Commerce Clause, are you to determine that burden by the type of — of formula used to collect the tax or by the amount of the tax in effect to the collector?

John W. Riley:

I think you determine it by, (a) saying what the incident is it — is it a local incident?

(b) You did — is the measure fair?

Will it discriminate against —

Hugo L. Black:

That’s what I was (Voice Overlap) —

John W. Riley:

— interstate commerce?

And (c) is the burden of a tax disproportionate to the benefits conferred by the State?

Hugo L. Black:

That’s what I was saying.

John W. Riley:

In that order.

William J. Brennan, Jr.:

But Mr. Riley, I take back Mr. Justice White’s question to you.

William J. Brennan, Jr.:

Missouri may impose a tax on manufacturer measured by the amount of the wholesale.

John W. Riley:

No, measured —

William J. Brennan, Jr.:

No?

John W. Riley:

Measured —

William J. Brennan, Jr.:

Measured?

Why not?

John W. Riley:

Well, alright, measured by the whole — the proceeds of sale, yes.

William J. Brennan, Jr.:

That’s exactly what I’ll do.

Byron R. White:

That’s right.

William J. Brennan, Jr.:

Alright.

Now —

John W. Riley:

And I see —

William J. Brennan, Jr.:

You say Washington — Washington may impose a tax measured by the same proceed.

John W. Riley:

It may —

William J. Brennan, Jr.:

Right.

John W. Riley:

— under Norton and Fields.

William J. Brennan, Jr.:

Why then can’t Oregon?

Don’t talk about now tax on sales.

Why cannot Oregon by reason of the activities in Oregon impose a tax measured by the proceeds?

John W. Riley:

It cannot tax sales to —

William J. Brennan, Jr.:

I didn’t suggest that.

John W. Riley:

It cannot tax business activities in the State measured by sales to a Washington customer.

Byron R. White:

But St. Louis can.

John W. Riley:

It is taxing manufacturing.

Byron R. White:

Well, why if this —

John W. Riley:

Oregon can’t tax manufacturing.

Byron R. White:

We’re taxing —

John W. Riley:

Washington can’t tax manufacturing.

Byron R. White:

We’re taxing the activity — we’re taxing whatever the business activities, Oregon would tax the — the business activities that — that are carried on to State of Oregon.

They’ve got a zone office there, they do all sorts of things in Oregon.

Byron R. White:

And certainly, you couldn’t say, for example, that the zone office contributed not at all to the sale (Voice Overlap) —

John W. Riley:

It has contributed something.

But because it would — you would including — if you’re including in the measure sales to the State of Washington, then we’re squarely within the holding of Gwin, White & Prince and Henneford and you can’t do it.

And that —

Byron R. White:

I — I suggest —

John W. Riley:

— this is a burden on interstate commerce.

Byron R. White:

I suggest, Mr. Riley, that your colleague in Oregon would not agree with you.

John W. Riley:

Well, perhaps not.

The — the point is that we have two different incidents, two different processes and two different States.

Now, as to any manufacturer in the State of Washington, the tax is identical to anybody in the State of Washington, as to wholesaling per se.

But in — you can’t tax this process in Oregon measured by sales to Washington.

You can tax if measured by sales to Oregon.

William J. Brennan, Jr.:

You’re not taxing the process.

You’re taxing the activities, a tax based on the activities in Oregon measured by the proceeds.

John W. Riley:

If that is so, then, sir, what is happening is —

William J. Brennan, Jr.:

That’s all that Washington do.

I don’t know why you (Voice Overlap) —

John W. Riley:

You’re taxing in — well, I’ve missed the point here.

We’re taxing instate activities.

William J. Brennan, Jr.:

And that’s all our argument (Voice Overlap) I suggest.

Byron R. White:

It’s our argument.

John W. Riley:

That they cannot tax if measured by sales to Washington customers.

They cannot measure their tax by sales to Washington customers.

William J. Brennan, Jr.:

(Inaudible)

John W. Riley:

We can because the act related to the activities engaged within the State by the —

William O. Douglas:

(Inaudible)

John W. Riley:

Oh, I believe it —

William O. Douglas:

(Inaudible) — engaged in the business of making sales of wholesale, is that right?

John W. Riley:

Yes, Your Honor.

William O. Douglas:

And then the amount of the tax is one quarter or 1% of the gross proceeds of those sales.

John W. Riley:

That’s right and asking —

William O. Douglas:

How it — does any different from a sales tax?

John W. Riley:

Oh, it’s been — it’s been acknowledged and it is established to that in — in a long line of cases that it is not a sales tax because the incidents in sales taxation fall, if the tax falls on the sale itself.

And — and if you —

William O. Douglas:

But if they’re just proceeds of interstate sales, I was just wondering what the actual difference is and why the New York sales tax is similar.

We held that that couldn’t be placed upon the out-of-state sales.

John W. Riley:

That is right.

But the Court on the other hand has held that you can measure it by interstate sales and this was done in Field Enterprise certainly, and it was done in — in Goodrich and it was done in Norton.

William O. Douglas:

Of course, inherently the Courts saved your — your question by assuming that it might be done for a proper allocation to the activities in the State but there’s no purported restriction here along that line, is there?

John W. Riley:

Oh, well, it is — it is and — and to the extent that the State has limited its application and so declared it in their decisions to this Court’s construct — construction of the situation in Norton.

And — and this is announced clearly in the Goodrich case.

William O. Douglas:

But still the tax is — is one quarter or 1% of the gross proceeds of the —

John W. Riley:

Of sales.

William O. Douglas:

— of the sales.

John W. Riley:

But sales related to and proceeding from those instate activities.

Byron R. White:

Why — why is Norton (Inaudible) — there’s no doubt that the zone office there contributed somewhat to the sales that took place in Washington and Washington would attribute the entire value of the sales to the activities in Washington at the same — at the very same time you admit and has admitted that the zone office in Detroit — in Portland contributed something to the sales.

John W. Riley:

Oh, yes.

Byron R. White:

And why shouldn’t the — why shouldn’t the Oregon be able to — to do so also?

John W. Riley:

If it were to do so, it would be imposing —

Byron R. White:

It might (Voice Overlap) —

John W. Riley:

— measured by Washington.

Byron R. White:

— it might apportion.

It might — we only think our zone office contributes 25% of the value of these sales.

John W. Riley:

Well, then we would have to overturn Norton, Gwin, White & Prince and Hennerford and the Field decision this Court — which — which this Court stated.

And I submit that in the analysis of those decisions makes our position quite logical and quite reasonable.

And it does not impose a burden on our case.

It does not discriminate against interstate commerce.

And you can only be said to be a double tax if we are forced to lump together manufacturing and wholesaling as one process and only one process.

Byron R. White:

In Norton — in Norton, the — the Illinois admitted the tax because the activities in the local office and the warehouse were deemed to be of decisive significance in the sales that may —

John W. Riley:

Well, that — that brings us to this precise and perhaps the most important question here.

John W. Riley:

Just exactly how does this work?

We contend that we have an ample quantity of local activity and we have physical facilities and then we have a continuous and systematic process that’s subject to tax, so why can’t we measure it by a gross proceeds?

Now —

Byron R. White:

But they are decisive.

John W. Riley:

— the question is, why — all of this — I don’t think there’s any doubt about that.

What you’re saying is and this is one of counsel’s argument is that the sine qua non of this taxation is going to be whether you have this local store through which the sale is processed, that this order for this particular sale has to go through the local store or has to be filled from the store.

Well, this is — this brings us to this point which is an important one I’d like to face right now.

I — and I say, is it to be that which is what General Motors argues or shall the test be the nature and extent and scope of this local activity and its relationship to these sales which we would include in the measure.

It seems to me that that would be an arbitrary test rendering that you could have any amount of local activity in the State, have 10,000 people in there, it wouldn’t make any difference if you didn’t have a store which touched those sales somehow or those sales orders or had something to do with them or they wouldn’t be taxable if you have to draw such an arbitrary line as that.

Byron R. White:

Do you — do you suggest that the law is not that, a — in an outside manufacturer is not taxable were all he does in the — in the State is send the drummer to the State that brings back order in his pocket?

John W. Riley:

If it is — as in Nippert, occasional or an occasional foray in and out of the State, it wouldn’t be difficult.

Byron R. White:

Well, the — at least they got regular customers there.

The drummer goes around and calls on everyone up to twice a year and bring (Voice Overlap) —

John W. Riley:

All we have to have more than Nippert.

We have to have substantial.

We have to have systematic and continuous operations within the State.

I think we have that.

I think we have vastly more than — in Nippert or in any type of — I think new have vastly more than in Field Enterprises and in any of the taxable transactions in Norton.

We don’t have this local store as we did in Norton to which the sales orders were processed.

Byron R. White:

Well, they had a warehouse too.

John W. Riley:

Well, they had a warehouse, yes.

William J. Brennan, Jr.:

But tell me, Mr. Riley, when — when, in fact, there are activities in sweepstakes just — it seemed to be the case here, what is your suggestive test which gives the power exclusively to Washington and precludes any tax based on the activities in Oregon by Oregon?

John W. Riley:

It’s —

William J. Brennan, Jr.:

But where — why the broad —

John W. Riley:

— it’s the position taken by Justice Rutledge.

William J. Brennan, Jr.:

No, no, what I’m — what I’m trying to get is, to me, here, we have activities in two States which are productive ultimately of these wholesales to watch them and customers.

This is true, isn’t it?

John W. Riley:

I think this is true.

William J. Brennan, Jr.:

Now, what I’m trying to get at, what’s the test that says that only Washington may impose a test measured by the proceeds based on Washington activities and denies Oregon any right to impose the tax measured by any part of those cases?

John W. Riley:

The test is that we are not taxing anything down in Oregon.

John W. Riley:

If we have substantial activity legitimately subject to taxation in the State of Washington, I don’t think it can be argued really that they aren’t doing anything which is not taxable somehow.

William J. Brennan, Jr.:

No, but you —

John W. Riley:

And if we measure —

William J. Brennan, Jr.:

— you — I thought your argument was, in any event, that Oregon could not impose any tax based on activities in Oregon measured by the Washington proceeds, am I wrong about that?

Byron R. White:

You’ve said that three — three (Inaudible)

John W. Riley:

The test — the test would be — we don’t have to be concerned with what they’re doing in Oregon.

If the activities in Washington are essential to these sales, if they are substantial, if they are systematic and continuous —

William J. Brennan, Jr.:

I — I appreciate that.

John W. Riley:

— I don’t know why we can’t.

William J. Brennan, Jr.:

And I understood you to say that by reason of this, Washington may impose a tax measured by 100% of these proceeds and Oregon may — may impose no tax measured by any part of those proceeds.

Is that right?

John W. Riley:

That’s right.

William J. Brennan, Jr.:

Well, I want — what I’m trying to get at if you had 90% of this activity in Oregon and 10% in the State of Washington with the ultimate sales, of course, the Washington customers, would you make the same argument?

John W. Riley:

I don’t’ understand your point, Your Honor, simply because — if — if it’s all done in Oregon, we couldn’t tax.

There wouldn’t be anything in Washington that had any relation to Washington sales.

William J. Brennan, Jr.:

40% of it’s done in Oregon and 60% is done in Washington, you’d say Washington.

John W. Riley:

Certainly.

William J. Brennan, Jr.:

Suppose it was 60% done in Oregon and 40% in Washington.

John W. Riley:

I’d still — I still say Washington as long as what was done in Washington is essential to the consummation of those sales and for one reason, Oregon can’t.

It would then be a direct burden according to Gwin, White & Prince.

The — the last question then was due process and I have to apologize for Mr. Malone, who has worked with me for four years in this case and we had hope to share the argument and we’ve nearly used their time on this due process, I think by the same token as follows that there is a proportional relationship and there is a reasonable relationship between the tax and the — that is conferred or privileges, if you will, and conferred upon General Motors within the State.

If we analyze the tax, first, by considering the scope and gamut of this activity, I think it has to be conceded that there’s something there that’s taxable, certainly, isn’t immune.

If you consider the measure and consider the fact that only the State of Washington can measure the tax in the manner that it has and consider also the fact that we don’t purport to measure it by transactions with which those activities had nothing to do, there can be no burden and no more to the burden upon the State.

Everybody in Washington engaging in these activities pays the same tax.

Thank you, Your Honor.

Earl Warren:

Mr. Barnes.

Donald K. Barnes:

Mr. Chief Justice.

A part from my friend here among other range on the relationship of certain past or prior decisions to the facts in this case, I think there’s a very sharp difference between the facts in our case and those in Field Enterprises.

Field Enterprises is the publisher of the Encyclopedia Britannica and what they were doing was soliciting retail sales for that encyclopedia, which is a fairly expensive retail item, taking down payments, and so on, and doing other things at that local office and there were 140 some odd salesmen producing a total of $500,000 worth of business, contrast to that with the people that we have in Washington and millions of dollars have developed there.

And the case was treated as one because it was affirmed on the authority of Norton as a case in which all the transactions interstate, though they were in character, were tied in with an intrastate business in that local office that they had there.

Donald K. Barnes:

Now, the counsel’s reliance on Norton really surprises me because that’s the best case there is on our side.

Norton, I — I collaborated this retail store and warehouse, and they had many transactions which were clearly intrastate and which a tax apply.

They had other transactions which the court, lower court held were tax because they was — they were, in one way or another, passed through and processed by that local office.

And this Court said, “Well, we’re not going to disturb the judgment of the trial court because it’s too high to separate these things out on those circumstances.”

But this Court said, “The purely interstate transactions which didn’t touch that office could not be taxed.”

As a matter of fact, that office was connected with those two because that office had a corp of engineers who went around and advised their customers on the use of these complicated abrasive machines and so on.

But every transaction we have involved here is a Norton type of transaction.

It has no relation as the trial court found.

Finding of fact Number 25 in the record at page 20 — 56 is to the effect that there was no relation between the transactions involved here and the other divisions to which Mr. Riley referred.

And incidentally, the evidence —

William J. Brennan, Jr.:

(Inaudible)

Donald K. Barnes:

Yes, Mr. Justice Brennan.

William J. Brennan, Jr.:

And GMAC and the other two?

Donald K. Barnes:

Yes, Mr. Justice Brennan, well, actually the — the evidence with respect to GMAC and United Motors Service and Motors Holding, and so on was excluded by the trial court on the ground that it was completely irrelevant because there was no connection of this type.

So that’s not a specific finding but that was the ruling on the exclusion.

Byron R. White:

Well, Mr. Barnes, do you now suggest that the — the three Pontiac representatives in Washington, for example, contribute nothing at all to dealers, purchasers of Pontiac (Voice Overlap) —

Donald K. Barnes:

Certainly not, that’s their purpose.

That’s why they’re in there.

Byron R. White:

And it’s — it’s a question of how much they contribute.

If they — if they became of decisive significance, as in Norton, the activities of the local office was — were a decisive significance, I suppose, then Norton is against you, isn’t it?

Donald K. Barnes:

No, Your Honor, because in Norton, that was an intrastate business, the conduct —

Byron R. White:

I understand that.

Donald K. Barnes:

— of which was essential to the interstate sales.

Byron R. White:

I understand that but nevertheless, there were — attributed the Illinois where certain — where certain sales from outside the State in the Illinois —

Donald K. Barnes:

Right.

Byron R. White:

— because the activities of the local office were of decisive significance in connection with those sales.

Donald K. Barnes:

That’s right.

Byron R. White:

Now, I would suggest that if your — if there’s been a particular situation and your Pontiac representatives, for example, were of decisive significance in generating purchases that Norton would be against you, whereas if they weren’t, it would be in your favor.

Donald K. Barnes:

Well, I wouldn’t go that far because here we have purely interstate commerce which is not, in anyway, mixed up with the intrastate commerce.

However, the — the situation which you suggest didn’t in fact exist.

Donald K. Barnes:

These people, of course, held that otherwise they wouldn’t have been there but it would be awful — going awful far.

Byron R. White:

I suppose you would — I suppose you would say that your Pontiac representatives are in commerce, in intrastate commerce, they aren’t some — they are doing something and they’re doing it in the State.

Donald K. Barnes:

What they were doing was strictly interstate commerce, no intrastate commerce whatever.

Everything they did was in furtherance of a sale of normally be outside the State and then shipped them into the State, which most is interstate commerce.

I — I’ve call it in our brief, I think not inadvisably extrastate commerce, nothing to do with the State of Washington except these people who were in there.

Earl Warren:

(Inaudible) the whole situation?

Donald K. Barnes:

If they had an office which had intrastate characteristics such as the zone officers we were discussing just before the recess.

And of course, we do pay tax on whether there is a zone office.

Byron R. White:

What do you — what do you think tax (Inaudible)?

Donald K. Barnes:

Exactly the same tax.

For example, the — the Chevrolet’s own office is now located in Seattle and taxes of the same tax were paid under the same transactions and the reason is that that zone office is there and it has some intrastate aspects.

So we —

Byron R. White:

What —

Donald K. Barnes:

— measure the tax by the entire business including interstate.

Byron R. White:

— what are those intrastate aspects, Mr. Barnes?

Donald K. Barnes:

I’m sorry, Your Honor.

Byron R. White:

What are those in — intrastate aspects?

Donald K. Barnes:

Oh, accept — it receives and accepts orders and part of the business and it pedals materials which are used by the — by the dealers in their own operations as distinguished in the wholesale sales that are involved in here.

And the — the principle point is that there is a good big substantial office such that but it does also, in addition to this main intra — interstate business carry on these few interstate transactions enough to bring it within the rule of Norton.

There’s been some difficulty in — on this Gwin, White & Prince question.

I think it’s perfectly clear that if the State were to succeed in its argument here, it could do so only by overruling Gwin, White & Prince or saying something the Court has never said and perhaps, will not feel it’s in the position to say which is that in dealing with this type of tax, which now is imposed on the vendor, not on the consumer, which is the type, Mr. Justice Rutledge talked about.

We can make a choice as between which — between two States, one which will pay it and one which won’t.

Now, Gwin, White & Prince said, “No State can impose this tax because if Washington could, so could New York,” where the good were being sold.

If Washington could impose this tax, so could Oregon, just as Mr. Justice White has argued.

The — the error in this tax is that it is an unapportioned tax.

After the decision of this Court in Gwin, White & Prince, the State of Washington fixed up this tax insofar as it applies to a service industry and Gwin, White & Prince was a broker, so that it is apportioned.

And now, they collect a tax from Gwin, White & Prince because they are not taxing a 100% of the gross receipts, which is what they are doing here.

William J. Brennan, Jr.:

Long after they have paid their tax?

Donald K. Barnes:

They amended it so that the — the tax paid by a service industry, which is Gwin, White & Prince, they were a broker, is apportioned, instead of being on the 100% of gross receipts.

William J. Brennan, Jr.:

What was apportioned?

Donald K. Barnes:

What — what was the apportionment?

William J. Brennan, Jr.:

I’m sorry.

Donald K. Barnes:

I don’t —

William J. Brennan, Jr.:

Did you say in Gwin, there wasn’t apportionment?

Donald K. Barnes:

Gwin, the — the tax which was held invalid, it’s the same tax in Gwin, White & Prince because it was unapportioned.

William J. Brennan, Jr.:

Yes.

Donald K. Barnes:

The State is now collecting from Gwin, White & Prince because it has changed that one section of its law to make the tax apportioned.

William J. Brennan, Jr.:

Apportioned.

Donald K. Barnes:

They’ve reduced the — the percentage of gross receipts from 100 to something less.

I don’t know what it is.

(Inaudible)

Donald K. Barnes:

This will — I — I don’t frankly understand counsel’s argument with respect to the nature of the tax.

And I — I just can’t see what difference it makes whether you call it a tax on an act or a tax on a privilege or a tax on a gross receipt or a tax measured by gross receipt.

It seems to me that constitutionally, as franchise tax for the privilege of doing interstate commerce and exclusively that.

And we find the assessments invalid because it is such a franchise tax and invalid because it attributes the tax to a minor local incident, thereby, exposing the entire commerce to multiple burdens and that’s the thing that Nippert against Richmond says you can’t do, is to breakup the transaction to little pieces and separately tax each piece, is invalid because of the exemption of the instate manufacturer or seller with the resulting double taxation of interstate manufacturing and selling and single taxation of the — of the entire operation within the State.

Invalid because it reaches transactions outside the jurisdiction under both due process and the fundamental principle of the State is confined to its own territory.

And finally, invalid because it is, of all reason, proportioned activities within the State.

Now, the activities to which it must bear some reasonable apportionment are the activities of the people who are in the State and not to the things which go on in Washington.

And as Mr. Riley said, the dealer selling agreement is performed in Washington but is performed in Washington by the dealer, not by General Motors.

Everything that General Motors does in performance of the dealer selling agreement to which sell automobiles, buy back parts when the dealer goes out of business under certain circumstances, all those things are done in Oregon or California or Michigan.

So that we have to look at the dollar amounts involved or the dollar measure here and compare it with these people who run around, three of them for Pontiac located in the — in the State and several more who come in on occasion, make your regular business and so on, but you add up all those activities and there isn’t very much.

And you cannot, in looking at the measures, add-on to that the activities of these unrelated divisions because their activities already being taxed.

There isn’t — they’re not on activity can be added to these activities to compare what the measure.

They’ve been taxed on their own account.

Byron R. White:

(Inaudible) should not attribute to itself the entire benefit of the credit for all of the sales in the part of the activity that goes into — occurs outside the State.

Donald K. Barnes:

That was precisely my point, Mr. Justice White.

Byron R. White:

And — but would you therefore — would — would you say then if Washington cut its tax in half so that it’s saved?

Donald K. Barnes:

They have to cut it more than that.

Remember we have three — Pontiac has three men in Washington and there are an awful lot of men in all together.

I think our payroll is 600,000 people.

Byron R. White:

Oh, I’d say, cut it — made it — then that’s what exactly, in its present form, except it cut the rate down at one-tenth.

I mean if the rate was one-tenth of what it is now.

Donald K. Barnes:

If it were actually, Your Honor, it might be something that we wouldn’t care to litigate just because of the trouble but the principle would be exactly the same because we’re talking about tax base and not rate.

It’s the — this fact that when we sell a $2000 Pontiac to a Washington dealer, they want to tax us on, no matter what the rate is, on $2000, instead of one — some apportionment.

Byron R. White:

Well, really, what we’re talking about is not — not whether Washington is trying to grab it all but whether the amount they take out of General Motors’ side is — is somewhat related — related to what — what they do for General Motors or something standard like that.

Donald K. Barnes:

That’s simply close.

Byron R. White:

Is this really the — what we’re — you wouldn’t really wouldn’t care how they did it, if you thought what they taxed you was a reasonable term.

Donald K. Barnes:

That we pay unconstitutional taxes when the amounts aren’t very big.

Byron R. White:

Yes.

Earl Warren:

Mr. Malone and Mr. Riley (Inaudible)

John W. Riley:

Mr. Chief Justice, may I also take up one of the questions involved in the first Interstate Commerce Clause problem.

Earl Warren:

(Inaudible)

John W. Riley:

Alright, thank you very much, Your Honor.

I maybe getting in to the meat grinder but I would like to get back to the questions presented by Mr. Justice Brennan and Mr. Justice White on this question of what we call the “preference problem”, namely, tax allocation of taxing jurisdiction as between state of origin, state of market.

Now, perhaps the best way to illustrate our point, Your Honors, is to ask this question — let’s go to the facts in Norton and ask ourselves this question, supposing that the State of Massachusetts, you remember that Norton was located in Worcester and orders were accepted there and they were filled there, so far as the disputed transactions were concerned.

In other words, you had, putting it roughly, an awful lot of selling activity going back — taking place back in Massachusetts.

Perhaps, so far as some transactions are concerned, even more than you had taking place in Illinois.

So, the question, which you, Mr. Justice White, asked about Oregon, could, in that case, have been asked about Massachusetts.

Should Massachusetts have been allowed in that case to have imposed upon the selling activities admittedly taking place there with respect to the transactions which are included in the tax base of Norton, should Mas — could Massachusetts constitutionally or should it constitutionally be allowed to impose any sort of gross receipts tax on those selling activities?

And we submit, Your Honor, that the answer is no.

We submit, first of all, that it should not be able to impose as the state of origin, it should not be able to impose a — gross receipts tax measured by all of the gross receipts nor for that matter, should the state of origin, in this case Massachusetts, to continue on with the Norton example, be allowed to impose even unapportioned gross receipts tax, with respect to the transactions included in the tax based in Norton because that would amount to what we admit is a very bad and an unconstitutional result, namely, double taxation.

That, Your Honors, is why we say that J.D. Adams versus Storen, that Gwin, White & Prince versus Henneford and particularly Freeman versus Hewit stand for the proposition that the state of origin, so far as gross receipts taxes on the selling process is concerned, should have their power cutoff.

Now, admittedly, it —

William J. Brennan, Jr.:

(Inaudible)

John W. Riley:

We say in view of Field and in view of Norton even if apportioned, yes, Mr. Justice Brennan.

Byron R. White:

But remember that Norton rule — that the — that the activities in the State of Illinois were decisive factor, decisive factor.

John W. Riley:

Yes, I appreciate that, Mr. Justice White.

Byron R. White:

And whatever the activity is in Washington, if you’re going to rely on Norton —

John W. Riley:

Yes.

Byron R. White:

You must sustain if — if — as far as Norton is concerned, you must sustain the burden of saying that the activities in Washington were decisive —

John W. Riley:

(Inaudible)

Byron R. White:

— factor.

John W. Riley:

Yes, we admit that, Your Honor, but let’s also notice this.

Byron R. White:

Not just some activities but decisive act.

John W. Riley:

This presents the — this presents what we admit is a separate question, namely, is this gamut of activities which took place in Washington including what we consider to be the support activities of the other divisions, were these decisive factors in holding this mark.

Byron R. White:

You accept that burden under Norton, do you?

John W. Riley:

Yes, we certainly do, Mr. Justice White.

And we believe that considering the whole picture, considering all of the instate activities of General Motors that are related to these sales, we submit, we have met that burden on notice.

You might say there’s a different of — difference in approach between us and General Motors here.

They would like to take each type of activity such as that of resident personnel and say, “Well, that doesn’t do the job.”

They would like to take the other divisions and say, “Well, those don’t do the job.”

They would like the, as Mr. Barnes has expressed it previously, occasional forays of people from the Portland zone and say, “Well, that doesn’t do the job either, nothing does the job, no taxing jurisdiction.”

Our difference in approach, with this approach, Your Honors, is that we feel that you have to take all of these and look at the whole picture and look at them together and if you want to take your rather perhaps mathematical approach, add them up and see what they all count to.

And we submit, Your Honors, that looking at the whole picture we have established our taxing jurisdiction.

Thank you.

Donald K. Barnes:

Just one remark, Mr. Chief Justice, other States do impose taxes on General Motors Corporation with respect to the income and so on, which is derived from the sales of automobiles to customers in Washington.

Now, those taxes are apportioned and they are valid for that reason.

They are paid to the State of Oregon.

They’re — they are not measured by gross receipts insofar as these sales are concerned, they are measured by net income.

Nevertheless, it’s net income derived in part from sales to the Washington customers and for the privilege of carrying on these activities in Oregon, in California, in Michigan as measured by capital stock in New York City, has — has no relation to these transactions, has, however, gross receipts tax which is apportioned and which is not been successfully challenged because it’s apportioned.

How many states — could I ask one question?

How many States that is unapportioned to gross receipts tax?

Donald K. Barnes:

So far as I know, Mr. Justice Harlan, only two are — it’s Washington and West Virginia.

And the West Virginia one isn’t applied quite this way.

Illinois had a tax which was treated that way, the retailers’ occupation tax, one is before is this Court in Norton.

But Illinois, there was still cost, it calls its tax that has corrected it and converted into a sales tax by enacting a complimentary use tax.

So it’s now being made a pure consumer type of tax, so it takes it out of this category.

There’s also, the City of Los Angeles and I think there are some other cities and of course, New York City.

But New York City’s tax is apportioned on these interstate transactions.