General Motors Corporation v. Washington

PETITIONER:General Motors Corporation

DECIDED BY: Warren Court (1962-1965)

CITATION: 377 US 436 (1964)
ARGUED: Feb 26, 1964
DECIDED: Jun 08, 1964

Facts of the case


  • Oral Argument – February 26, 1964 (Part 2)
  • Audio Transcription for Oral Argument – February 26, 1964 (Part 2) in General Motors Corporation v. Washington

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

    Earl Warren:

    Number 115, General Motors Corporation, Appellant, versus Washington, et al.

    Mr. Barnes, you may proceed with your argument now.

    Donald K. Barnes:

    Mr. Chief Justice and may it please the Court.

    This appeal challenges the constitutionality of unapportioned gross receipts tax assessment made by the State of Washington against General Motors Corporation with respect to exclusively interstate commerce, and it challenges that assessment on two grounds, interstate commerce and due process and two points under each.

    Rather startling new law would be created by affirmance of this decision, the statute under which the assessments were made have been in effect for 20 years and have been as it’s going on for longer than that before this issue was raised and there’s no precedent for it anywhere.

    Reversal however, requires only the application of familiar principles denied particularly extraordinary facts.

    Well, the prior decisions of this Court in state tax matters indicate that there are two things that need to be kept in mind carefully, now I want to mention those before I go into the details of the facts.

    The first is the nature of the tax that makes a lot of difference as we look at each precedent and each set of facts, and second, as to the facts not only what was done but where it was done.

    This tax is one which is imposed specifically by the statute and directed to be a burden upon the vendor for the privilege of engaging in the business of making sales at wholesale and measured by unapportioned gross receipts derived or related to those sales.

    Now, the circumstances to which a tax of that nature can constitutionally be applied are considerably narrower than the circumstances which will support any apportioned tax including, best example, and that income tax even though that’s paid by the vendor also, or a consumption tax, the sales or use tax which is paid by the vendee.

    Now, the facts here are that, although constitutionally from constitutional point of view very simple, they’re quite detailed.

    General Motors Corporation is a Delaware Corporation that’s qualified to do business in Washington.

    Its business is manufacturing primarily automobiles and parts and accessories therefore and some of the — those products are involved in this suit.

    There are many other products which are not involved here.

    The selling which the Corporation does is incidental to and a part of its manufacturing activity.

    We are not, in other words, a merchant.

    The Corporation is organized into divisions and conducts its business through divisions which is still not separately incorporated are substantially independent of each other and in fact to a considerable degree in competition with each other.

    This appeal involves transactions of only at Chevrolet, Oldsmobile, Pontiac, and General Motors Parts Divisions.

    The first three manufacturing automobiles by that name, Chevrolet also trucks and General Motors Parts supplying parts and accessories for service requirements of dealers in the aftermarket.

    You will recognize that Chevrolet and Pontiac for example are in competition with each other.

    Now, in the State of Washington, there are no manufacturing facilities for any part of the corporation.

    There are, however, offices of some of the other divisions which are not involved in this suit.

    They either are concerned with other products or they’re concerned with entirely different activities such as financing.

    The tax on all of the transactions that are related in any way to those offices, has been paid without dispute and is not here involved in any way.

    There is in the State, no office of any kind having any relation to any of the tax receipts in the first of two classes of transactions.

    In the second class, there is a small branch which will be mentioned in a minute.

    Now, the transactions which are here in — in dispute, all concerned products which are manufactured entirely outside of the State, sold entirely outside of the State, delivered outside of the State to common carriers, paid for outside of the State, and shipped into the State.

    They’re all sales at wholesale to independent dealers.

    Now, the sales organization, since we are talking about a tax on the business of selling is of immediate concern, and it’s the same for each of these three principal divisions, although each is independent of the other, each has a national headquarters in Michigan.

    Each has a — a regional West Coast Office in California.

    Donald K. Barnes:

    Each has its lowest organizational office in Portland, Oregon.

    Now, that zone office in each case covers a territory of all of State of Washington, all of Oregon, all of Alaska, and variously parts of Idaho, Montana and Wyoming.

    The personnel at Pontiac office, and similarly in the Olds office run from 20 to 22 people and that gets up to 40 in the case of Chevrolet as it’s quite apparent, that’s very thin coverage for so large a territory as we’ve just described.

    Those people worked in most — most of them in and some in and out of the offices in Portland, but there are two classes of employees belonging to those offices, who are assigned specific territories within the zone and reside in those territories.

    Those are the service representatives and the so-called district managers.

    Now, combining those two groups, the maximum in Washington at any one time that is stationed in Washington, was the Pontiac division 3, Oldsmobile 6, and Chevrolet 17.

    The zone manager responsible for having the right dealers in the right place to this —

    Byron R. White:


    Donald K. Barnes:

    They may, Mr. Justice White.

    They are assigned to territories which are at least flatly in Washington.One of them may have lived in — in Oregon, worked in Washington.

    I think we’re not sure.

    I’ll assume they lived in Washington, some of them do.

    There’s —

    Tom C. Clark:


    Donald K. Barnes:

    I didn’t hear you sir.

    Tom C. Clark:


    Donald K. Barnes:

    Yes, Mr. Justice Clark, the three Pontiac men worked only for Pontiac, the Oldsmobile were only for Oldsmobile, and so forth, and as I said, in competition with each other.

    William J. Brennan, Jr.:

    And do I understand that they service the dealership, is that it, these fellows?

    Donald K. Barnes:

    They call on the dealerships of service representatives, advised the dealers with respect to service problems, that is how to maintain the automobiles and the district managers advised them about everything else, how many salesmen they have and — and how to project the estimates of how many cars they’ll need.

    William J. Brennan, Jr.:

    (Inaudible) the district managers.

    Donald K. Barnes:

    District manager is the one who does this.

    William J. Brennan, Jr.:

    Oh, he’s the one, and where is he located?

    Donald K. Barnes:

    He is assigned a territory with 30 or 40 dealers.

    He lives within that territory.

    And as I say in the case of Pontiac, there were three of them who were — two I believe, lived in Washington, one lived in Oregon, but worked also in Washington.

    His office is the office of the zone in Portland, Oregon to which he reports and visits occasionally.

    The zone manager is the man in-charge of the whole office in the whole area.

    The district manager is the law man.

    He isn’t in-charge of anybody.

    Tom C. Clark:

    General Motors have other divisions that operate in Washington State?

    Donald K. Barnes:

    Yes, Mr. Justice Clark.

    Tom C. Clark:

    Are these three — you currently — these three, I don’t understand.

    Perhaps, you’ll explain it in your argument if you’re ready.

    Donald K. Barnes:

    Why we’ve mentioned these three only?

    Tom C. Clark:


    Donald K. Barnes:

    Because the assessments were made against them and not against the others.

    It was a matter of the State’s audit procedure.

    Tom C. Clark:

    This is the only one — these three are the only ones involved.

    Donald K. Barnes:

    Four —

    Tom C. Clark:


    Donald K. Barnes:

    — the General — three car divisions plus the General Motors Parts Division.

    Tom C. Clark:

    I see.

    Donald K. Barnes:

    But similar assessments could have been made against other divisions that would operate in the same way.

    There are still others as I said before which operate through offices in the State and they pay taxes on their operations.

    Byron R. White:


    Donald K. Barnes:

    One example which is mentioned in the State’s brief is United Motors Service Division.

    United Motors Service Division is a distributor of accessories and some parts.

    A good example is — is batteries.

    When dealers and gas stations require batteries for replacement, they buy them from distributors of United Motors Service Division.

    Byron R. White:

    Now, does the United Motors Service Division office in the State of Washington perform services similar to the zone office in connection with these other three divisions?

    Donald K. Barnes:

    Generally similar, Mr. Justice White but it has to do with the products which they are handling —

    Byron R. White:

    I understand.

    Donald K. Barnes:

    Not those of the car divisions.

    Byron R. White:

    I understand — I understand but you have paid your tax on those in — in the case of United Motors without arguing.

    Donald K. Barnes:

    That is correct.

    Byron R. White:

    And apparently because the — these people who perform this service are gathered together in an office?

    I mean you have an office —

    Donald K. Barnes:

    We have an office, yes sir.

    Byron R. White:

    — they were name on the door, is — is that the — is the critical — the critical fact in (Voice Overlap) —

    Donald K. Barnes:

    It is.

    Byron R. White:

    And that generally, the — this is just a part of a general rule that he had sufficient activity on a State and the office measures for this insufficient activity in the State or not?

    Donald K. Barnes:

    If we have an office in the State, any transaction passing through that office is considered part of the base for this type of tax.

    Byron R. White:

    In the case of United Motors, do you have a whole inventory in the State?

    Donald K. Barnes:

    I don’t know whether that allows in the State or not.

    I suspect they do not.

    Byron R. White:

    But they didn’t — but these people, the United Motors for example, I don’t — do — do they actually have salesmen that solicit?

    (Voice Overlap) —

    Donald K. Barnes:

    Their functions — their functions are about the same as those of the district managers for the car division.

    Byron R. White:

    No solicitation.

    Donald K. Barnes:

    Generally no solicitation.

    It’s promotion.

    The zone manager is responsible for having the right dealers in the right place, his staff including these district managers, give him some assistance.

    He gets a lot more from headquarters offices in Michigan as to where dealership should be placed to meet the market effectively.

    And then he makes recommendations to the region and headquarters offices where the selections are approved, then he executes a dealer selling agreement which is a rather formal document, he executes that at his office in Portland.

    It defines the relationship which will exist from then on between the manufacturer and the dealer.

    And the dealer is an — an independent customer of the corporation, not its agent nor its emissary in any way.

    The dealer provides his own premises, his own inventory, his own tools, his own personnel.

    His new car inventory is usually financed and sometimes that’s done by General Motors Acceptance Corporation, which is a wholly owned subsidiary of the General Motors Corporation.

    And of course, if the tax is due and that finance business are paid at General Motors Acceptance Corporation.

    In a few cases, part of the fixed capital which is a very heavy requirement for a new dealership is supplied temporarily by Motors Holding Division, which is another and separate Division of General Motors Corporation.

    It again, pays the taxes on its own transactions.

    Now, the dealers’ business is retailing new cars, parts and accessories which he buys from General Motors Corporation and other related products which he buys from others such as tires, used cars, fuel, and so forth.

    And sometimes, the dealers carry competing lines of automobiles, I mean not competing lines of our own but a competing lines of other unrelated manufacturers.

    A dealer sells where he pleases and sets his own resale prices.

    But under the contract, he has a duty to develop the market for his particular line of car in that vicinity.

    And to that end, he’s required to have adequate premises, personnel, stock, capital, tools and signs, uniform accounting, so that his results can be compared or at least uniform financial statements.

    The result of accounting which can be compared with other dealerships to detect financial weaknesses and so forth and he must submit a number of reports, the most important to which are for the purpose of assisting the corporations’ production planning because automobiles as you know are sold to make, that is the are made-to-order Chevrolet alone could make 2 — 2,000,000 different kinds of automobiles under all the options which are available.

    After the agreement has been entered into, the function of the zone office and all its personnel is to assist the dealer in any way he can to make his operation profitable and to check his performance of the agreement and see that he lives up to it.

    Financial matters are approached through these financial statements.

    The — there’s advice given also on proper development and utilization of sales personnel and sales methods, similarly on service procedures and the handling of service complaints.

    Donald K. Barnes:

    Most of the principles which go into this advice and the details of it for that matter are developed by staffs in the zone, region and headquarters offices but are then delivered by the district managers or service representatives through their regular visits to the dealers which they make, or as often as once a week.

    In the case of larger dealers, sometimes less for the smaller ones and there also, they pick up the dealers’ complaints and questions and carry them into the other offices for technical assistance and handle what they can on their own.

    There are — these business provided the — these two people are supplemented by irregular visits by the zone manager himself, by the department heads in his office, and by personnel from other offices and experts that are brought in for special cases.

    Now, the reports that the dealer is required to submit begin with a ten-day report, and on that, every ten days, he reports to the zone office the unit sales, that is the number of automobiles he has sold during the past 10 days.

    The inventory has left at the end of the ten days.

    This is used for the development of this projection — economic projecting trends which you — if you watch the new — automobile reports of all the newspapers will show you every ten days, they’re boasting about how good business is because of what happened during the last ten days by putting all these reports countrywide together.

    Financial statements, I mentioned before, is submitted monthly.

    And the interesting one which is insisted upon by Chevrolet and it’s usual in the case of Pontiac, is a 90-day projection.

    The district manager and the dealer sit down together in the dealers’ place of business and make up this projection.

    And that estimates the number of cars which the dealer will need to order for each month for the next three months, as revised each month.

    The purpose of course, is production planning for the reason already mentioned.

    Now, the zone office consolidates these reports from all the dealers on its zone and passes on to the factory the consolidation, not the individual reports.

    Oldsmobile doesn’t — has this procedure on its books but at least the zone office in Portland has said that they find little occasion to use if they may, the estimates by their own personnel in their own office.

    At least that they are not orders as you see.

    Now, the sales procedure starts with an order, it’s really a purchase procedure by the dealer which is sent by the dealer of the zone office in almost all cases by mail, though occasionally, he may telephone in an urgent one, and occasionally, the district manager happens to be there.

    He’ll hand it to him.

    Now, the district manager carried it into the zone office.

    The zone office records these things and then forwards them to proper factory, and they have to make a choice there because not all models are made at all factories.

    Some may be made in California, most of them are.

    A few come only from Missouri, and some have to be shipped from Michigan.

    The proper factory to which the order is sent, accepts or rejects the order and acceptance or rejection is no formality in this situation, again, because of the wide variety of the product.

    There are many times that the factory cannot make the particular order that has — particular car that has been ordered.

    It must reject the order and request the dealer to submit something else.

    The factory notifies the dealer, it then schedules the car for production which takes a matter of two to three weeks.

    If everything is on time, it receives payment when time comes for delivery.

    And then having received payment, it makes delivery to a common carrier that will be the factory passing the title at that point and consigned to the dealer in this case in Washington.

    Now as you see from this description, there is ordinarily no solicitation of orders, although I think that point is a matter of complete immateriality.

    The retail demand for automobiles is created wisely by the dealer activity.

    He does a lot of soliciting, and supplemented by the national advertising which is placed at entirely with — at Michigan and then of course distributed by the media not by us to all over the country.

    The dealer will buy all of the cars that he can sell, so it becomes unnecessary to solicit from him.

    Donald K. Barnes:

    If we can get him to make the sales to the retail customers, the wholesale business follows.

    The corporation personnel do not contact the dealer’s customers except to referee an occasional service complaint.

    The trial court divided the transactions into two classes.

    And the first class, it put all sales by Oldsmobile, all sales by Pontiac, all sales by General Motors Parts Division, and Chevrolet sales to dealers in the nine southern counties of Washington.

    Now, as to these transactions, no Washington office of any kind had any contact, whatsoever.

    And in the case of General Motors Parts Division, although with there’s — no point was made on this in the trial court, it appears on evidence, the court — I mean the Division has no field personnel at all.

    All its men stay right on the warehouse and simply receive a field orders at that point.

    A second class — no, the trial court held the assessment in — unconstitutional as to all these first class of transactions and was reversed by the Washington Supreme Court.

    The second class of transactions involves only sales by Chevrolet Division to dealers located in counties other than the nine southern counties of Washington.

    And the sole difference between those transactions and the others is that as to those dealers, to whom those sales were made, there was within the State a one-man branch office, this one man had a secretary.

    He had a territory which included all of that part of Washington which I’ve mentioned plus all of Alaska and part of Idaho.

    He had no contact with any other personnel and no part in the activity which I previously described.

    His procedure was — his function was to hold hands as he said, “The dealers in that territory,” and primarily to expedite deliveries of this car shipped from California and so forth during a period of short supply.

    Both lower courts held the assessments constitutional as to the sales to those dealers.

    Now, the activities in and out of Washington, wholly out of Washington are the engineering designed procurement, manufacture of the automobiles, the financial management, general management, the placement of the advertisement, the sales procedures, so far as General Motors is concerned, that is the receipt and acceptance of the orders, the delivery of the product and receive the payment.

    Now, partly out of the State and partly within it is this function of selecting and appointing dealers in the first place, the rendering of advice and assistant to the dealers and checking on the dealer performance, most of which as we said was done at the leg-work level by the resident district manager and is assisted sometimes by the service manager.

    That’s a long recitation of facts but there is much detail and yet very little in substance that can’t be said very briefly to recapitulate that.

    Automobiles, parts and accessories are manufactured, sold and delivered entirely out-of the state and shipped to customers within the State.

    No new — there is no related intrastate commerce of any kind and there is no local office of any kind.

    The local activity by traveling representatives in furtherance is in furtherance of out-of-state sales and that is the only instate activity.

    The exceptions, of course, are the one-man office previously mentioned relating to deliveries of the second class, and there is no field personnel at all for General Motors Parts Division and like characterizations hereafter will be subject to those two exceptions to avoid repetition.

    Now, the formulation and application of constitutional rules in this area depends upon the incidence and to some extent upon the incidence and impact of tax.

    It is said that the purpose of taxes is to pay for benefits to the taxpayer or at least to a class on which the taxpayer is a member and that they should, therefore, bear some physical relation to the benefits and protection which are conferred by the Governor.

    And the basis of tax was distinguished from its purpose is a privilege or a property or an activity, or something which is within the jurisdiction of the taxing authority, and the tax, therefore, should bear some relationship to that privilege or property or activity.

    Now, the Washington Court, in approaching this problem, we are sure was mistaken in its application of economic principles and that is why it strained to avoid the constitutional rules which have been established by this Court.

    It fell for this market state concept, that is, “Market provides the income and the State is therefore entitled to some payment for protecting the market,” and or it goes on with the — the vendor is taking money out of the State when he sells products into it.

    Now, that type of argument is unsound on all accounts.

    And as this Court has frequently observed, income is produced not by the market but by capital or labor and both combined and therefore is produced where the capital and labor or both combined or expended and not where the customer happens to be.

    The State’s protection to the market is protection to the customers, not to the vendor or only very incidentally, to the vendor.

    All states of course are equally producer in markets so that this argument about taking money out of the market is completely fallacious.

    Donald K. Barnes:

    The value which is put on the State equals value taken out.

    It’s no more reasonable to say that General Motors takes money out of Washington than to say that Washington takes automobiles away from General Motors.

    Both statements are equally absurd.

    Now, the Court inadvertently perhaps explains its action, its opinion by relying to uphold the tax upon the presence of the customer and upon the fact that he reads the newspapers, “Beam in national advertisement,” the Court said.

    Now, it’s perfectly reasonable as Mr. Justice Rutledge has had occasioned to point out that a tax which is paid by the customer, that is a consumer tax, like a use tax, should be paid to the consumer’s state because it’s the consumer who’s getting the benefits or the protection of that state.

    It’s the consumer who can — if he doesn’t like it, control it with his fellow voters through the elective franchise and it’s there that competition is concerned.

    And we have used taxes and sales taxes both paid by the consumer balancing in the state of the consumer so that the — the out-of-state vendor has no advantage over the instate vendor.

    That is fine for consumer taxes.

    But this tax, like other taxes on the vendor, should be paid to the vendor’s state, and that is where the vendor operates, these taxes on the vendor.

    And the statute specifically forbids it’s being passed on as such to customers within the State.

    It is passed on instead as part of the cost, just like any other cost that goes into the computation of general prices.

    The result is, it’s paid by customers in Michigan.

    It has no effect on local competition.

    The contrast to this, well the property tax which my friend mentioned in the State’s brief, of course, these automobiles to the extent, they’re manufactured in Michigan, come out of factories in Michigan.

    Property taxes are paid on those factories to Michigan localities and those taxes are included in the cost which the Washington customer pays when he buys his car, but that’s as it should be because the factories in — on which the taxes are paid are contributing to the Washington customer’s car and so are the services provided by the State of Michigan in support to those factories.

    That’s entirely different from a tax which is related merely to the fact that there’s a customer in Washington which is required to be passed onto a customer in Michigan.

    The constitutional rules involved here are four.

    First, States may not tax the privilege of engaging in interstate commerce.

    Second, States may not discriminate against interstate commerce nor expose it to multiple burdens.

    Third, States may not tax subjects not within their territory, and fourth, States may not impose taxes bearing no reasonable relation — relation to services and protection afforded by the State.

    Now, this tax as applied through these assessments is on the privilege of engaging in exclusively interstate commerce.

    The Supreme Court of Washington said, “Though the tax is on local activities, these district managers running around in the State.”

    But such activities were solely in furtherance of sales which themselves were made as that Supreme Court recognized entirely outside of the State.

    They were not any part of nor were they in any way related to in the intrastate business and they were not related to any local office as the trial court found.

    Now, the statute says that the tax is on the act or privilege of engaging in the business of making wholesale sales, engaging within the State, the business of making wholesale sales.

    Because it’s where they use the statutory version or the judicial version, it seems to me to make no difference.

    A tax which is on an act, which is necessarily and exclusively a part of interstate commerce is a tax on interstate commerce and if its —

    Byron R. White:

    (Inaudible) on United Motors Division where you have an office there —

    Donald K. Barnes:

    Mr. Justice White —

    Byron R. White:

    — (Voice Overlap) what you’re saying was the — was the bear justice of — heavily upon it, the sale takes place outside, no solicitation outside?

    Donald K. Barnes:

    That, you see — as of very keen observations of it.

    It would — it would indeed.

    All I can say to that and that one time I thought of weaving it into argument, saying it before I was asked, is that our policy is that we have an office in the State we pay the tax on every transaction that passes through that.

    Now, I mean not merely the State but also this does happen in — although, it’s a very rare tax of Washington and I believe in West Virginia, only two have it and West Virginia doesn’t apply it this way.

    Byron R. White:

    I gather then, you don’t concede the legality of the collection before you have an office in the State?

    Donald K. Barnes:

    If — if that — that operation —

    Byron R. White:

    You didn’t pay the tax without (Inaudible)

    Donald K. Barnes:

    That’s — that’s right.

    That operation is vulnerable to attack on the ground that the State may not impose a tax on interstate commerce and that it didn’t held a number of times by this Court.

    Our case is almost identical with Alpha Portland Cement which first said that and Sweeney Brothers back in the 1920s —

    Byron R. White:

    If you win this then that would be your next case, I think?

    Donald K. Barnes:

    That does not follow.

    I — I hope that we won’t have this type of tax around much longer.

    Hugo L. Black:


    Donald K. Barnes:

    To the State of Washington?

    Hugo L. Black:


    Donald K. Barnes:

    Since they enacted, I think that was 1935, but we’re not — the tax is not a burden-some tax when it is related to a major activity within the State.

    And I say — I — it does occur in other jurisdictions that exist — that says —

    William J. Brennan, Jr.:

    But if I — if I get it though Mr. Barnes, what makes it made you are minor is whether you have an office located.

    Donald K. Barnes:

    That is the principle distinction, but we come to other differences too.

    There, as I pointed out, there are three or four reasons altogether in which four ways in which these — the assessments violate the constitutional rules established by this Court.

    Only the first one is subject to the confusion which Mr. Justice White has pointed out.

    That is — that would apply also to our offices there and I should have that since the end to the order period here involved, Chevrolet division has split its Portland zone office and has a zone office in Seattle and it pays the tax without question on the transactions going through that office.

    Earl Warren:

    (Inaudible) district managers have any office at all?

    Donald K. Barnes:

    We know that none other than their zone office in Portland as they simply work from their homes, calling on the dealers and of course they may get telephone calls and mail at their homes but their only office is the zone office in Portland.

    Earl Warren:

    Is that — is that like the design to keep them from having an office (Inaudible) tax?

    Donald K. Barnes:

    No, Mr. Chief Justice.

    The business — the business is run without any regard to taxes and tax problems are my problem after the business had been done.

    The — the zone office operates that way because there’s no reason for this individual to have an — an office.

    His job is to work out of the zone office and go call on people and the only reason that we don’t say that his — that he is in the zone office is because the territory is so large.

    Donald K. Barnes:

    If he is in Northern Washington for example, they don’t want him to come back into Portland every afternoon, so he just comes in once every week or two or when he has a vacation to report.

    Earl Warren:

    But, as I understood it, he also had a moment to the duties in connection with the thing.He even straightened out complaints for these 20 or 30 dealers that he — that he have, did he not?

    Donald K. Barnes:

    In their customer complaints?

    Earl Warren:


    Donald K. Barnes:

    The — the service representative would do that, that he —

    Earl Warren:

    But he will tell to the district manager, doesn’t he?

    Donald K. Barnes:


    No, he reports to a head — to a — to his department head in the same zone office but it’s a separate —

    Earl Warren:

    In Portland?

    Donald K. Barnes:

    In Portland, I’m sorry.

    The customer complaint is not a big part of the business.

    Usually, the dealers can handle their own complaints but occasionally, we get a customer who writes to Mr. Frederick Downer in New York and complains about his Chevrolet, doesn’t run right then, it goes back.

    In that case, the service representative would take it to deal and say, “What did you do for this fellow and what’s the matter with his car?”

    It’s not a frequent occurrence but it does happen.

    I mentioned it because it’s the only contact that any of our representatives have with the ultimate customer, that is with the retail — the dealer’s retail customer.

    Hugo L. Black:

    How many people are in the Oregon office?

    Donald K. Barnes:

    In the Oregon office — in the case of —

    Hugo L. Black:

    — (Voice Overlap) Washington that but who engaged in these activities in Washington?

    Donald K. Barnes:

    In the case of Pontiac Division, there were three who resided in Washington and the case of Oldsmobile 6 and the case of Chevrolet 17, and then there were sporadic visits by other personnel from other offices, but those were the maximum numbers which anytime resided within the State.

    Hugo L. Black:

    I understand you don’t — you don’t assert that they would become liable for tax simply by moving that office that they’ve rented or owned, in Portland over the Washington.

    Donald K. Barnes:

    I did say exactly that unless we’re sure they would be liable for it but I’m sure we would pay it because we in fact did that.

    When we split the Portland Chevrolet office and put half of it in Seattle, we have since that time paid tax on every transaction going through the Seattle office.

    Hugo L. Black:

    I don’t understand why you wouldn’t in the way be taken from taxes and given it over to Oregon.

    You’ve said, paid tax on that office, but in reality, it belongs to Washington.

    William O. Douglas:

    I think you’ve misunderstood Justice Black’s question.

    You gave the number of people employed in Washington.

    He asked the number of people employed in Oregon.

    Donald K. Barnes:

    Well, I’m sorry, sir.

    The Pontiac and Oldsmobile offices each have from 20 to 22 total personnel including the ones which are in Washington, the numbers I just gave you, the balance are in Oregon.

    Chevrolet has about 40 home — somewhere between 25 and 30 are in Oregon, permanently located in Oregon.

    Hugo L. Black:

    And you pay the tax to Oregon, connection with that office, do you?

    Donald K. Barnes:

    Yes, Your Honor.

    Not this type of tax.

    Oregon doesn’t have this type of tax.

    We do pay some kind of a franchise tax.

    I know as you’re sure what it is except there’s an apportioned tax to the State of Oregon.

    We also pay one to the State of California and one to State of Michigan and one to Missouri — part of this.


    Donald K. Barnes:

    That is from the due process questions, the amount of the tax is enormous in relation to the activity which is carried on within the State of Washington.

    And that’s one of our — that’s our fourth point that the tax is invalid because the assessment — there is no reasonable relation to its subject.

    That is activity within the State.

    William J. Brennan, Jr.:

    Could you put a label on this tax?

    Donald K. Barnes:

    Unapportioned gross receipts, normally not.

    It’s a tax for the privilege of engaging in the business of making wholesale sales, within the State, measured by unapportioned gross receipts.

    William J. Brennan, Jr.:

    Now, was that your label, is that what the statute tells?

    Donald K. Barnes:

    That is almost an exact quotation of the statute.

    William J. Brennan, Jr.:

    Well, what label do you give that, franchise, gross receipt?

    Donald K. Barnes:

    I call it franchise tax, yes sir.

    William J. Brennan, Jr.:

    Measured by —

    Donald K. Barnes:

    Unapportioned gross receipts.

    Hugo L. Black:

    And you did — you didn’t have a (Inaudible) the right to impose such a tax, that tax.

    Donald K. Barnes:

    On interstate commerce, yes sir.

    Hugo L. Black:

    But on the interstate commerce, but on wholesale in the State?

    Donald K. Barnes:


    If the wholesale sale was made within the State, then the tax is not constitutionally infirmed on any ground has yet been raised because this is a fundamentally unsound kind of tax because it even locally, without regard to interstate —

    Hugo L. Black:

    None of by figure and sounds in there but I —

    Donald K. Barnes:

    Well, this one’s a champion in that respect because it pyramids and it discriminates as augments — as against the, let’s say a succession of little businesses coming up with the same final product and in favor of a — a large and integrated business doing the same thing, and the illustration we have on our brief is one of those things.

    Hugo L. Black:

    You don’t mean that about this tax, do you?

    Donald K. Barnes:

    This tax, yes.

    Hugo L. Black:

    But this tax works on the little fellow did in General Motors?

    Donald K. Barnes:

    It’s worst on the little fellow than on someone else in the same business and integrated.

    It would be if you could conceive of it.

    The example I gave was a — an integrated furniture manufacturer who did everything that was needed to make a table and sell at retail from cutting down the timber to making a retail sale.

    He paid one tax.

    And except for certain exemptions in the statute which don’t affect the principle here, if you broke that down among little businesses and one fellow cutting the trees and selling them and somebody else making lumber and somebody else making table and somebody wholesaling and somebody retailing, you have five taxes.

    So the more business is broken up, the more this tax discriminates.

    However, that issue is not in this case.

    That’s just pertinent.

    It is pertinent in this respect that because the tax is so fundamentally unsound at any place, it makes it more difficult to appreciate the way it discriminates against interstate commerce as it surely does.

    And as to this first point —

    Byron R. White:

    (Inaudible) to make the wholesales of tables and lumbers (Inaudible) the furniture manufacturer, is that a wholesale sale?

    Donald K. Barnes:

    It’s taxed under the Washington Act — but the Washington Act, as we’ll come to later on, is divided into a lot of different classes.

    Now, I made the point before that we are — we are not merchants, we are manufacturers.

    Byron R. White:


    Donald K. Barnes:

    And you’re making really the same point now, Mr. Justice White, that the logger is not a seller — not a merchant, he’s a logger.

    The statute taxes us on, because of separate rates, various activities separately.

    It taxes extraction which I believe is what that would come under.

    It taxes manufacturing, it taxes wholesaling, it taxes retailing, and there’s a catch-all clause that taxes everything else.

    Byron R. White:

    All — all through the gross receipts measurement thing.

    Donald K. Barnes:

    Yes, the difference being rates.

    I like to quote to some of these with one first point to quote Mr. Justice Clark in Northwestern States.

    He said, “It’s beyond dispute that a State may not lay a tax on the privilege of engaging interstate commerce.

    For a reasons which I’ve just mentioned in response to questions on apportioned gross receipts tax, it’s inherently discriminatory in that point also.”

    It was made by Mr. Justice Clark in Northwestern States.

    That is if it — by its very nature, it tends to make interstate commerce bear more than its fair share.

    The reason for that is that it selects incidents and then it says, “Here’s an incident on which we’ll place a tax.”

    And that Washington of course can tax these little incidents, so can somebody else.

    This incident of wholesale selling for example, which is supposed to be the basis of the tax here and you get these multiple burdens.

    That was the reasons that this very tax as the same one, was held invalid by this Court in Gwin, White & Prince and the exposition of that point is best made and there was somewhat later case of Nippert against Richmond.

    Interstate commerce may of course become involved in the measure of tax.

    Donald K. Barnes:

    If it gets itself so mixed up with intrastate commerce, that there isn’t any reasonable way of separating it too and that’s where the Norton Company got into trouble.

    And this Court refused to upset the judgments, substitute its own judgment for that of the Supreme Court of Illinois when it held that Norton had to pay so much — a tax so much somewhere to the this with respect to transactions which were interstate in character but which passed through and admittedly, intrastate local store operating within the business — within the State.

    But the transactions in our case have had no contact with any intrastate business whatever.

    Earl Warren:

    Was this agreement executed between General Motors and the dealer, supervised as it is by — by these district managers and these service people gets you into the same trouble?

    Donald K. Barnes:

    You mean, does that put us in — in intrastate business within the State?

    Earl Warren:


    Donald K. Barnes:


    No, Mr. Justice — Mr. Chief Justice.

    If it did, you see, we’re talking here about just one piece of business.

    I could distinguish it from Norton.

    Norton was an — a manufacturer of abrasives and abrasive machineries.

    And to simplify it, let’s assume if they sold abrasives in this local store, they sold the machinery merely by shipping from their factory in Massachusetts.

    Now, the — the orders for the machinery which were passed through or deliveries which passed through the local store because they went along with this abrasive business were held to be so mixed up with the intrastate that you couldn’t separate it.

    Now, if you say that we’re in anyway engaged in intrastate business here, as the operation of these dealerships, you have made us retailers and destroyed our wholesaling function.

    In that case, there’s no tax due at all because the only operation is retail and the tax amount has been paid.

    This is a second stage that’s involved here.

    The State all along has walked a tight rope.

    They wanted to make the dealer sort of part of General Motors, yet they’ve been awfully careful not to say they’re an agent because if they ever said they’re an agent, their whole case would fall.

    If they — if we sold these cars on consignment, and the dealer merely as our agent passed title to the retail customer, there would be no wholesale transaction and hence none to this tax.

    The retail tax as I say is — has been paid by the dealers.

    Now, discriminatory structure of the Washington tax is our second problem.

    The tax supplies, by its terms to manufacturing, if the product was manufactured within Washington, if the product is sold outside of Washington, but only if it’s sold outside.

    It applies to wholesaling if the product is sold within the State no matter where it’s manufactured.

    But it does not apply to manufacturing if the product is sold within the State.

    Now, our former statute — former version of the same statute was held unconstitutional by the Washington Court itself.

    That version exempted from tax, from the tax under selling activity, receipts which had been subjected to the tax on the manufacturing activity.

    The Court — the Legislature then promptly reversed the exemption.

    And the Washington Court now holds it constitutional on the theory that everyone pays only one tax on the wholesaling.

    But it seems logical and reasonable if the original scheme was unconstitutional, mere in version of the statute to produce the same result, is not going to cure it.

    The Washington Court looks at only one section of the tax in the tax law, and the proper test is the entire scheme of taxation.

    Donald K. Barnes:

    We neglected to mention this in our brief but we did cite the case of Henneford against Silas Mason on another point and that’s exactly what was involved there.

    That was one of the early cases in which the constitutionality of the use tax was challenged.

    And this Court held that although the use tax standing alone was obviously invalid because it applied only to products which were brought into the State having been purchased outside, and never to — our products purchased within the State.

    “If the whole thing was nevertheless constitutional because the use tax balanced the sales tax and equality was the theme,” said the Court, “of the entire scheme of — of taxation.”

    In Halliburton against Reilly, which is the latest case on this subject to come before this Court last — last term, “A use tax which otherwise would have been valid was held invalid in part because it applied to certain transactions or bore more heavily on certain transactions, then would the corresponding sales tax had the transaction been entirely within the State of Louisiana.”

    And here, we have the same situation.

    If other states have the same taxing scheme that Washington has, interstate commerce will always pay twice and intrastate will always pay only once.

    Now, the City of St. Louis does have the same scheme and General Motors has a factory in St.Louis, and cars manufactured there, a few of them are sold in the State of Washington.

    The taxes are paid twice on those transactions.

    Once to the City of St. Louis for the privilege of manufacturing in St. Louis and once to the State of Washington if this assessment is upheld for the privilege of selling them to customers located in Washington.

    The —

    Byron R. White:

    (Inaudible) and had an office — a sales office there and you would still have to layer the taxes.

    Donald K. Barnes:

    That is correct.

    Byron R. White:

    And you would make any, and — and it’s very doubtful if you could upset that Washington tax when those circumstances are the same.

    I doubt that if the payment —

    Donald K. Barnes:

    Now, that’s the — that’s the point we were discussing a little earlier, as I’ve said beyond inherent unsoundness of this type of tax makes it difficult to keep in mind the difficulty it has with the interstate commerce.

    I see that it’s recess now.