Halliburton Oil Well Cementing Company v. Reily – Oral Argument – March 27, 1962

Media for Halliburton Oil Well Cementing Company v. Reily

Audio Transcription for Oral Reargument – December 03, 1962 in Halliburton Oil Well Cementing Company v. Reily
Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Earl Warren:

Number 264, Halliburton Oil Well Cementing Company, Appellant, versus James S. Reily, Collector of Revenue, State of Louisiana.

Mr. Taylor, you may continue your argument.

Benjamin B. Taylor, Jr.:

Mr. Chief Justice, members of the Court.

We wish to recapitulate briefly our arguments of yesterday and reserve our remaining time for rebuttal.

Louisiana sales tax as the intrastate tax upon the intrastate sales.

Louisiana use tax is the interstate tax which falls only upon the use within the State of Louisiana of goods imported into the state across state lines and then used in Louisiana.

Halliburton simply says that the interstate use tax ought not to be any heavier than the intrastate sales tax would be in an identical situation minus only interstate commerce.

Felix Frankfurter:

I take it you would say that a use tax, merely a use tax, no sales tax at all, would be stricken down as to interstate tax?

Benjamin B. Taylor, Jr.:

That’s correct in our view Your Honor.

Felix Frankfurter:

I mean in your view?

Benjamin B. Taylor, Jr.:

Oh yes, sir.

Well, actually, I — it’s inconceivable sir to me that the use tax standing alone since by very definition, it implies only upon goods imported across state lines.

I should — let me straighten that out a little bit.

Felix Frankfurter:

Why is that — I don’t quite — in the nature of things?

Benjamin B. Taylor, Jr.:

In the nature of the Interstate Commerce Clause and the protections afforded by it.

If the use tax as it now exists (falling only upon goods which have crossed state line).

A use tax in that nature if it stood alone and there were no comparable intrastate sales tax, we submit that that be — unconstitutionality would be rather obvious.

Earl Warren:

Mr. Taylor, one thing that’s bothering me is this, suppose there were two manufacturing plants in this city of — in Oklahoma and one of them was yours where you manufactured this equipment.

Next to you is another one that — another plant and that manufactured them for sale and you brought them — brought them into the State, they, one of theirs, you, one of yours on the same car, let’s say in railroad car and you got to the — you got to the Louisiana line.

And you insisted that you only be charged for the materials, the tax on the materials that are involved and that the other should be taxed on both materials and labor and in shop equipment merely because they’re going to sell in interstate commerce.

Would there not be — or would there be, let me say a discrimination as against the other party?

Benjamin B. Taylor, Jr.:

Now in that case Your Honor, you’re — you are supposing that they were two interstate operators.

Now, there’s nothing parenthetically requires — the Interstate Commerce Clause doesn’t cover two interstate operators.

You’d get over to due process, but again, I miss — I’m getting away from my point.

What — my point is this, if Halliburton were selling then the appropriate comparison would be Halliburton the interstate salesman with an intrastate salesman, since Halliburton is not selling but he’s manufacturing for his own use.

We submit that the proper comparison is between Halliburton, the interstate manufacturer-user and comparable intrastate comparab — intrastate manufacturer-user.

One of the basic fallacies sir as we see it at the Louisiana Supreme Court and of the Louisiana Collector is that in their test for discrimination, they do compare such unlike dissimilar and non-comparable transactions.

And if they make that argument here today and we anticipate that they will, we would like the attention of this Court to be already focused upon its area and speciousness.

It is totally impossible for the Collector of Revenue of the State of Louisiana to sustain his position.

We say impossible, and we say that deliberately, sustain his position on the labor and shop overhead fees that is if there’s no arbitrary tax discrimination.

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Benjamin B. Taylor, Jr.:

If he does make a fair comparison between two comparable economic activities, one interstate and the other intrastate, we submit that the test for discrimination one must compare comparables, that the only fair comparison is to compare the tax burden of an outers to out-of-state.

That is an interstate manufacturer-user such as Halliburton with the tax burden of a comparable intrastate manufacturer-user.

In other words, if Halliburton had a direct competitor in Louisiana, in exactly the same business operation lacking only the interstate commerce’s element with the tax burden of each be the same.

Now, since the collect —

William J. Brennan, Jr.:

Well if — are you saying then that you don’t question that Louisiana made for purposes of classification setup a classification of manufacturer-user but that within that classification, it may not discriminate between the out-of-state manufacturer-user and the intrastate manufacturer-user?

Benjamin B. Taylor, Jr.:

We would — we don’t feel it’s quite necessary to make that basic premise.

We say that if you are going to — no, I agree with you exactly.

I’ll go back and pick it all up.

If you’re going to talk about a class, a group of people, a bunch of manufacturers who use their own product, you’ve got to treat them all alike.

If Halliburton came into Louisiana and sold it, it would be proper to compare them with a wholly intrastate operation where the operation was simply a sale.

William J. Brennan, Jr.:

Well, that would be a classification of vendors.

Benjamin B. Taylor, Jr.:

That’s correct.

William J. Brennan, Jr.:

And this is a classification you suggest of manufacturer-user?

Benjamin B. Taylor, Jr.:

That is correct sir.

That is our position.

We say that since the collector has stipulated that the burden here would be three-to-one as compared to an intrastate manufacturer-user, that’s actually a little misleading.

Its taxation price has no taxation on the labor and the overhead element.

Felix Frankfurter:

Could it pick out these particular commodities not by name of course or description, but could it pick out a class of commodity, the incident of which is relevantly limited?

A state cannot pass a sales tax on everything, as a matter of fact that the qualifications and exceptions, are they not all over the place in all the sales tax, is that correct?

Benjamin B. Taylor, Jr.:

That’s correct sir.

Let us —

Felix Frankfurter:

And as to use tax for sale, is it not?

Benjamin B. Taylor, Jr.:

Yes sir.

Felix Frankfurter:

Now, could it pick out for purposes of a use tax particular kind of hardware, without infringing upon such capriciousness whatever that maybe, but the classification itself is not agreed for protection of the law?

Benjamin B. Taylor, Jr.:

Now we don’t think that you could repeal the sales tax and keep the interstate use tax.

We don’t think you could put the sales tax at 2% and put the interstate use tax at 500%.

Felix Frankfurter:

Well, but the question that I put bunglingly is whether the subject matter is such that you are comparing pomegranates with pineapple with tomatoes, could a state say, “We only have sale taxes on vegetables and not on fruits”, or “sales tax on fruit and not on vegetable”, and vice-versa?

Benjamin B. Taylor, Jr.:

Yes, Your Honor, the sale — the sales tax just does exactly that.

It ex — it has many exemptions.

Felix Frankfurter:

Alright.

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Benjamin B. Taylor, Jr.:

It is our position —

Felix Frankfurter:

Now, could it restrict it to the kind of things to be as neutral as that, as Halliburton people bring in?

So long as it doesn’t say only stuff brought in but have a classification of things whoever falls within that category is subject to the sale tax as well as the use tax?

Benjamin B. Taylor, Jr.:

In Louisiana sir, there are certain statutes on our books which apply only to cities over 500,000 and that includes to only New Orleans.

Now conceivably, that type of thing could be done but that —

Felix Frankfurter:

You’re not alone in that?

Benjamin B. Taylor, Jr.:

Right sir.

But that I don’t believe is what we’re talking about here.

We say for example that they could —

Felix Frankfurter:

But in its application may it not apply to that?

Benjamin B. Taylor, Jr.:

Conceivably it might sir, but I don’t think we have that situation here.

For example — let’s put it this way.

The sales tax is historically proc — preceded the use taxes.

It was soon found that although people would buy their pencils and their cigarettes in the State, they would go across the State into the non-taxing State for their automobiles and their refrigerators.

Now, so they put in the use tax to make them equal.

Now, let’s suppose that in the Louisiana tax, in the next legislature, they should say in Louisiana, automobiles are going to be exempted from the sales tax.

I don’t think that they could collect a use tax on imported automobiles.

I think by definition, it would be unconstitutional.

Now, one of the incredible things that I think you gentlemen will find in this brief amicus curiae, one of the briefs amicus curiae is that Louisiana fields are total freedom, a total freedom to exempt from the sales tax without any comparable exemption from the use tax.

Incredibly, they got an exemption from the sales tax of “vessels and ships and ships and supplies and vessel supplies if made in Louisiana shipyards.”

If this Court says that the use tax — if this Court should uphold them in saying that the use tax, the interstate tax shall be heavier than the intrastate sales tax, then we submit that they could refill the sales tax and keep the use tax and we submit that by implication, this Court would uphold that incredible exemption, exemption from the sales tax of vessels made in Louisiana shipyards.

If you have a vessel that’s made in Louisiana shipyard and it’s sold, there’s no sale on the original transaction.

If it’s resold in the casual sale, there’s no sale — sales tax on the original transaction.

If you go across the Biloxi though or to some state that doesn’t have a sales tax law and you’d get a vessel and you trailer it back — float it back through the Rigolets into Louisiana then when you bring it up to the state line they collect — they’d flagged you down say, “That’s not a vessel that was made in Louisiana, pay me 2% use tax.”

The collector feels an incredible freedom we feel here to discriminate against interstate commerce.

Felix Frankfurter:

Do you think that would make of this country an uncommon market?

Benjamin B. Taylor, Jr.:

That is correct sir, I should say.

Henneford versus Silas Mason Company in that case, this High Court upheld a use tax of the State of Washington, although it fell only upon transactions involving interstate commerce because in the case then at bar, the use tax of the State of Washington did not exceed the state — the sales tax of the same state but was merely complementary to and precisely equal to it.

And therefore, the use tax did not discriminate and hence did not offend the Interstate Commerce Clause.

Now, it is unquestionable we submit that this was the rationale of the Henneford case.

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Benjamin B. Taylor, Jr.:

In the Henneford versus Silas Mason case, Mr. Justice Cardozo had this to say, “Equality is the theme that runs through all sections of the Washington statute.

When the account is made up, the stranger from afar is subject to no great burdens than the dweller within the gates.

In each situation, the burden of a use tax is balanced by an equal burden of the sales tax where the sale is strictly local.”

And Mr. Justice Cardozo concluded a non-discriminatory tax has never been regarded as imposing a direct burden upon the interstate commerce.

Now, it’s our simple position here today that implicit in the Silas Mason case and correctly so is that whenever the interstate use tax does levy a burden which is heavier than the burden of the comparably intrastate sale tax in an identical situation, minus only the element of interstate commerce, then the interstate use tax, it does discriminate him because of such discrimination is violative of the federal constitution.

In Silas Mason, the use tax was upheld because it was not heavier than the sales tax and therefore no discrimination.

All we seek here is what seems to us to be the already implicit corollary ruling that if in a given case the use tax is heavier than the sales tax then it does discriminate against on — interstate commerce as unconstitutional.

Why has this issue not reached the State — this Court before?

The reason is simple, wherever it was raised before it’s been decided for the taxpayer at a lower level.

In Ohio and North Dakota, it’s been ruled administratively that since labor and overhead are excluded from the tax base of the sales tax, the constitution of the United States requires a similar exclusion from the use tax base.

In California and Oklahoma, the courts have upheld the constitutionality of the use tax carefully interpreting the use tax base to exclude all items excluded from the sales tax base and pointing to the constitutional necessity for so doing.

In one case and only one, in Alabama, the issue was squarely raised.

It was raised in the isolated sales phase of the case.

There were five barges that were sold in an isolated sale and the State of Alabama took the position or act as an isolated sale exempted from the sales tax but there’s no comparable exemption for the use tax on identical situation.

Of course that case is not authority for this Court, but we submit that it persuades you because it’s intelligently written and we — we’ve gone to it at length in our brief and it holds precisely what we have said here in almost towards one (Inaudible).

Felix Frankfurter:

What’s the citation of that case?

Benjamin B. Taylor, Jr.:

That’s State versus —

Felix Frankfurter:

Its Bay —

Benjamin B. Taylor, Jr.:

Bay —

Felix Frankfurter:

— Towing Company —

Benjamin B. Taylor, Jr.:

Bay Towing & Dredging Company.

Felix Frankfurter:

Alright.

Benjamin B. Taylor, Jr.:

That’s correct.

Felix Frankfurter:

Thank you very much.

Benjamin B. Taylor, Jr.:

In that case, the Court said this, as we see it, if the use tax is construed as imposing a tax on the use in the state of tangible personal property purchased outside the State in casual and isolated sales transactions, such tax would constitute an unlawful discrimination against interstate commerce contrary to Commerce Clause of United State Constitution since no similar equivalent tax burden is imposed in connection with the purchase of such property in casual and isolated sales transaction within the State.

Can it — continue to quote, “The United States Supreme Court has held that a use tax integrated with a sales tax in amount of some odd hours is not violative of the Commerce Clause when such a system of taxation does not discriminate against transaction in interstate commerce but merely equalizes the burden of taxation on purchases made in the interstate commerce and on strictly local sales”, citing Henneford versus Silas Mason Company.

However, if such a system of taxation places a discriminatory burden on transactions in interstate commerce which would not apply to local sales, the use tax will become unconstitutional in its operation.

As the Supreme Court of the United States said in Best versus Maxwell, the Commerce Clause forbids discrimination where the forthright are ingenious, in each case it is our duty to determine where the statute under attack, whatever its name maybe, well in its practical operation, work discrimination against interstate commerce.

I believe that’s our case.

Earl Warren:

Mr. Sanford.

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Chapman L. Sanford:

Mr. Chief Justice, may it please the Court.

We of course admit that the constitutional rules applicable to the questions raised by Halliburton had long been settled.

We can’t discriminate against interstate commerce, we can’t tax interstate commerce but we feel then that the important thing to show here is the operation of Louisiana use and tax law and to show that it does not in fact discriminate against interstate commerce.

But before giving into the law itself, I would comment briefly on the stipulation in how this case came about.

We of course stipulated how Halliburton operates.

They are an interstate operation and they operate with these trucks which they manufacture themselves in Oklahoma.

There’s no question, however, that these trucks become a part of the massive property in Louisiana and they admit that of course because they are willing to pay a tax on it.

They are saying that they want to pay a tax upon the cost to them of the nuts and bolts and the chassis and the sheet metal that went into creating a highly specialized piece of machinery which is what it was in Louisiana the time that it came in.

Hugo L. Black:

Would it bother you if I ask you now, suppose that same machine has been manufactured in Louisiana, would there have been a sales tax applied to anything sold in that State?

Chapman L. Sanford:

Yes sir, they would have been.

Hugo L. Black:

On what basis?

Chapman L. Sanford:

On the basis of the sales price, the price for which the truck were sold would bear 2% tax at the time of sale.

Felix Frankfurter:

Suppose it weren’t sold but the services afforded to contract because I understand it —

Chapman L. Sanford:

In other words —

Felix Frankfurter:

This truck, this contraption or this combination of things isn’t sold in Louisiana, is it?

Chapman L. Sanford:

No, sir.

Felix Frankfurter:

What is the transaction in your words?

Chapman L. Sanford:

As to what happens here?

Felix Frankfurter:

No, what is — on what are you imposing a sales or use tax?

Chapman L. Sanford:

In this particular case, we’re —

Felix Frankfurter:

Here —

Chapman L. Sanford:

— imposing the use tax upon the fair market value as of the first moment that the property was withdrawn from commerce and became a part of the massive property in the State of Louisiana —

Felix Frankfurter:

But —

Chapman L. Sanford:

— for use there.

Felix Frankfurter:

Suppose exactly the same transaction took place entirely within Louisiana?

Chapman L. Sanford:

We have stipulated Your Honor.

In other words, the stipulation are that we would not tax the shop overhead and labor.

Felix Frankfurter:

Well, in dollars and cents (Voice Overlap) —

Chapman L. Sanford:

I wouldn’t want to say this that the — and that is what I was just getting too incidentally.

Felix Frankfurter:

Well, just tell in terms of dollar and cents, what you do to this or what you seek to do or have done on the protest, what the use tax amounts to in dollars and cents that Justice Black asked on what it is, what the basis of it is, because it came in from Oklahoma —

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Chapman L. Sanford:

Well —

Felix Frankfurter:

— has compared it exactly the same thing had been done, the same arrangement, the same contractual arrangement or whatever it was wholly playing its role, this inanimate role in Louisiana.

Have I made my question clear?

Chapman L. Sanford:

Yes sir, I’m just trying to think I want —

Felix Frankfurter:

Because I just want to be sure that I’ve stated it clearly.

Chapman L. Sanford:

Well, I will answer your question this way.

For the purposes of this case, we are arguing this case as if — if Halliburton itself were manufacturing this particular truck in Louisiana for its use in Louisiana at the time they had purchased the component parts within Louisiana, it would have pay a 2% tax on the cost of those component parts.

Or if it had imported those component parts into Louisiana, it would have pay the use tax on the fair market value across to those component parts at the time they came into Louisiana for use.

That apparently is what the stipulation meant and we have argued it that way here.

Mr. Taylor said yesterday that we hadn’t commented on the stipulation below, we did.

And —

Felix Frankfurter:

I don’t care about that.

But I — I’m still maybe to my own comprehension —

Chapman L. Sanford:

But —

Felix Frankfurter:

— having yet gone — what it is on what you seek to assess the use tax as this organic whole, as this composite thing comes in and would you be doing exactly the same thing if it had all been done in Louisiana?

Chapman L. Sanford:

Well, let me get an explanation of the law there, at this time, I think that will answer it to show how the law does work.

The sales tax law and the use tax law and to show Your Honor then why there isn’t a discrimination, I think that Your Honor will then understand a little better what we are doing.

Felix Frankfurter:

Can you before you go unto details, tell me that the results in dollars and cents would be exactly the same whether it was brought in from Oklahoma or it was all done in Louisiana?

Chapman L. Sanford:

Not to Halliburton.

But what — I’m going to show Your Honor that we feel that it doesn’t make any difference and why.

Hugo L. Black:

May I ask you, I’m curious because this seems to bring up a new record of the use tax and the sales taxes which perhaps have not been covered by, is it true or not that ordinarily when completed products of both intrastate from another State that the — and the use tax apply that the — it’s imposed on the value of the completed articles rather on the aggregate of some of the parts?

Chapman L. Sanford:

Your Honor is talking about other states?

Hugo L. Black:

Well, take your State.

Chapman L. Sanford:

Our State imposes the use tax on the value of the completed item.

We take the thing as of the moment it becomes a part of a massive property in the State.

Hugo L. Black:

Well, there are many things that going to the manufacture of products.

I’m a little puzzled by this myself up to this time.

Many things go into the manufacture of products, take the tomato that was mentioned.

You have a lot of work done in another state, some other just buy an insecticide to kill the — to make it grow.

There, you think that are into it.

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Hugo L. Black:

Your use tax, however, when you — when that tomato comes in, if you do have a use tax on groceries?

I suppose —

Chapman L. Sanford:

We do Your Honor.

Hugo L. Black:

I suppose your use tax applies to that regard to how much labor was put on in anywhere else, does it?

Chapman L. Sanford:

That’s correct.

Hugo L. Black:

So that you’d be in the same situation as the farmer who was shipping tomatoes in and — for his own use, of his own factory use as you are here with Halliburton.

Chapman L. Sanford:

I think we can show this differed.

Everybody is treated equally in this case, as of the moment that we apply the tax.

I think there’s no question about that.

The only question is that possibly you can call this a loophole.

I doubt that it’s even that.

And the — if the question is going to resolve itself down to whether or not a taxpayer who doesn’t avail himself of a loophole is discriminated against because they exist the loophole —

Hugo L. Black:

You don’t have —

Chapman L. Sanford:

— not that — there’s anybody —

Hugo L. Black:

You (Inaudible) yet has not met the situation —

Chapman L. Sanford:

No sir.

Hugo L. Black:

— not attempted to — alleviate a situation of this kind, one, if its sales tax on the complete value of what’s sold as to use tax on a complete value of what’s used.

Chapman L. Sanford:

Yes, sir.

Hugo L. Black:

Without regard to where it was produced or anything else to that kind but you do not because that’s not in the usual pattern of sales in use taxes.

You do not apply use tax on a thing it’s sold in the State.

And that’s what —

Chapman L. Sanford:

That’s correct (Inaudible).

The law isn’t —

Hugo L. Black:

That’s (Voice Overlap) —

Chapman L. Sanford:

— written exactly that way.

I think that there we could abolish the sales tax and the use tax would apply.

But I don’t think it makes — I mean if we abolish — take everything out of the law pertaining to sales tax, well then there would be a use tax.

Hugo L. Black:

If you had a law like, I believe its Indiana that has one of that kind?

I’m not sure.

Chapman L. Sanford:

What — our law applies like this and the basis or at least — let’s take the rate first, the rate is 2%.

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Chapman L. Sanford:

In both cases, the use tax is 2% and the sales tax is 2%.

So we have at least an equality of the amount of the tax we are charging.

And in the basis of the tax in a sale of course is the sales price and it’s that would or then it be the fair market value and it’s easily established in that case because a willing seller and a willing buyer right then and we have a fair market value.

In the use tax, we have the basis is the fair market value.

It may be a little hard to determine but the basis is identical to that of a sales tax if a taxpayer can show that the fair market value as of the moment it is withdrawn from commerce to use in Louisiana, if he can show a similar sale for identical item, well of course that’s the value upon which this 2% is going to be applied.

So we have the rate and the basis identical and now, we have to look to see if the time is identical and it is.

In the sales tax, it is the sale for retail and that of course is the first taking by a consumer of the property for use or consumption in the State, and that’s the moment when the sales tax applies.

And the use tax is identical because the use tax does not apply into a consumer, brings it in to the State for use or consumption, it is withdrawn from commerce.

And as of that moment, the moment where the consumer has it in his possession in Louisiana for use or consumption in Louisiana, is that — is when the tax applies.

And therefore, we have the sales tax and the use tax with the same rate, the same basis and the same moment of taxation and it applies for component parts or completed items.

The fact that a person can go down to the hardware store say and purchase tools and component parts to make an item for himself at one rate and take those home and apply his labor to it and create an item of greater value than the component parts, I don’t believe discriminates against the same man — another man who goes to the store and buys what — a similar item to where it’s been created by the man at his house.

In other words, if you have a — if you want a nice desk that may cost $500 in the store, you go buy the lumber for a hundred, you go home and you make a nice desk for yourself, you’d pay tax for a hundred.

Another man that buys an identical desk at the store pays $500 and he pays the tax of $500.

Felix Frankfurter:

But if the fellow in Louisiana buys this $100 worth of lumber and makes a desk and sells it for $500, what is he taxed off?

Chapman L. Sanford:

If it’s a casual sale Your Honor, in other words he’s not in the business of selling furniture or desk or building desk to sell, well there is no tax because there is an exemption for a casual sale.

Felix Frankfurter:

Now, suppose whether the desk or something else, instead of being sold, it’s left.

Suppose use tax on linen in Louisiana, use tax on linen, sales of linen.

Chapman L. Sanford:

Yes, sir.

Felix Frankfurter:

But not suppose of — I see these (Inaudible) or whatever they’re called that lease or laundry service, merely the use of linen, you tax that in Louisiana?

Chapman L. Sanford:

We have a rental tax Your Honor.

Felix Frankfurter:

A rental tax.

And the rental tax of linen brought in, in combination from outside of State with the same as the rental tax within?

Chapman L. Sanford:

Yes sir and the person that lets the linen would pay a use tax on the linen that he handed.

Felix Frankfurter:

Now, this same transaction, I’m trying to understand whether this service that Halliburton offers are not selling this combination of products, but merely giving its service, is there anything comparable to that that this tax at the same rate –if the rate isn’t enough that you can have the same rate and still have one rabbit and one horse situation.

If it’s the same situation, is there anything — any analogy to this service of Halliburton is rendering by stuff brought in from Oklahoma, does anything like that take place in Louisiana when — or everything takes place in Louisiana with which you can compare it?

Chapman L. Sanford:

I don’t believe Your Honor.

Let me answer the question this way and I see if I understand it.

There’s very little manufacture in Louisiana, for own use or for sale and —

Felix Frankfurter:

Suppose all this took place hypothetically in Louisiana, what would happen?

Chapman L. Sanford:

The trucks that were used in Louisiana Your Honor, the tax would have been imposed upon the component parts at 2% tax.

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Felix Frankfurter:

That isn’t done here, is it?

Here, you impose a use tax on the value of — as though, it was sold, as though the entirety was sold.

Chapman L. Sanford:

That’s correct and that’s what our law says that the —

Felix Frankfurter:

But if it was all done in Louisiana, it would be merely tax on the basis of a part, is that correct?

Chapman L. Sanford:

According to the stipulation, that is correct Your Honor.

Felix Frankfurter:

Well but that’s the case we’ve got, isn’t it?

Chapman L. Sanford:

That’s correct.

That’s the case.

Well, let me say this —

Felix Frankfurter:

What are we to do with it?

We’ve got to decide on the basis of that — of the case though.

Chapman L. Sanford:

Alright, I agree with you Your Honor, that’s correct.

But it doesn’t necessarily mean that there is a discrimination here, because —

Felix Frankfurter:

Well, there isn’t — they may not be here but the answer you’ve given me if I understood that it showed discrimination that if it were all done within Louisiana hypothetically, then you’d only tax on the basis of the parts.

Chapman L. Sanford:

I — well, I would suggest that we have to compare use and sales taxpayers in equal position.

Take two manufacturers of these trucks in Louisiana, one imports all his component parts and pays a use tax on them.

The other buys all these component parts in Louisiana.

They pay identical taxes.

Manufacturers in Louisiana pay identical taxes.

And in this case, what they are saying is not that there’s any competition in Louisiana for them, not that the — not that any one manufactures these trucks there but they say, “We could”, that’s what the stipulation says.

They could manufacture it there and thereby reduce their use tax burden or there sales tax burden.

But as Your Honor knows, we can’t equate all the taxes, but they would incur other taxes.

They have property taxes.

They have use and sales taxes on their tools, on their equipment and they have ad valorem taxes on the movables as well as the immovables.

They increase — if they operated there, they would increase the apportionment factor for their income and their franchise tax.

In other words —

Felix Frankfurter:

That’s the —

Chapman L. Sanford:

— they’re in a — if the manufacture there — they would be in a different tax position.

Felix Frankfurter:

I understand — I follow you but that’s a totally different line of argument instead of saying they’re equal.

What you’re saying is now is a very different thing.

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Chapman L. Sanford:

Well, you —

Felix Frankfurter:

That you’ve got to take the entirety of the tax structure of a state and the internal seller, the local seller not only pays that sales tax, he pays a lot of other things.

And therefore, you could differentiate at your argument because the out-of-towner is immune from those things to which he would be subjected.

Chapman L. Sanford:

No sir, I don’t want to say that we differentiate or that there is an inequality because I would like to say that as of the moment of taxation as of the — which is the way we would have to look at a piece of that item of tangible personal property, as of the moment that it becomes part of the property, of a massive property in the State, we say, “Well, let’s see which you have here.”

And this discrimination Your Honor doesn’t just — if there’s a discrimination, it doesn’t just operate against the use taxpayer.

It would operate against a sales taxpayer in Louisiana.

Felix Frankfurter:

I don’t know what that means to become a massive, part of the massive property —

Chapman L. Sanford:

That is — it’s withdrawn —

Felix Frankfurter:

I understand but the —

Chapman L. Sanford:

— from inter — from commerce.

Felix Frankfurter:

I know the phrase but I don’t see its application.

Chapman L. Sanford:

It —

Felix Frankfurter:

Drawn what has happened here, they come in from outside into the State and then they’ve merely concluded their interstate transaction which if it be that and nothing else is immune from state taxation, except to the limited extent that you can cut off some local activities.

Chapman L. Sanford:

Well, let me point this out then that most items that are sold at retail at Louisiana come into the State, in interstate commerce and I think that’s probably the case in all states.

Felix Frankfurter:

Yes and they’re put on the shelf and that’s (Voice Overlap) —

Chapman L. Sanford:

And they’re put on the shelf.

Felix Frankfurter:

That could be — put part of the mass — becoming part of the massive (Voice Overlap) —

Chapman L. Sanford:

Right.

And the same thing happens in the use tax case.

They bring in interstate commerce, items identical to those that on the shelf and it is withdrawn from commerce (Voice Overlap) —

Felix Frankfurter:

But you can’t tax them before they’re put on the shelf.

Chapman L. Sanford:

Right.

We don’t seek to do that here nor — and he admits that we don’t do that here.

He admits he owes the tax.

He admits that the tax is applicable.

He’s not saying that he is in interstate commerce.

And we do not — we wouldn’t think about taxing if he were in interstate commerce.

He’s out of interstate commerce, commerce is at an end and we’re right as far as that’s concerned.

We’re right within the Silas Mason case.

Commerce is at an end, it’s for use there just like anything on the shelf.

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Chapman L. Sanford:

And so the keep — the property is in identically the same position with its — whether it’s something that bears the sales tax that came in interstate commerce or something that bears a use tax that came in interstate commerce.

Felix Frankfurter:

I think the qualification is concealed or rather covered by your freight.

If in use there and the question of the case as I see it is what the — it is.

Chapman L. Sanford:

Well, let’s take a similar truck Your Honor that is made in Duncan, Oklahoma by a competitor.

This is by the Mr. Chief Justice’s hypothetical.

He comes into the State for sale.

It goes on the shelf in a retailer’s shop.

It’s there for sale and it came in an interstate commerce.

A customer comes in and says, “I want to buy this truck.”

Well, he pays of course a price that is the equivalent to the value or which would be the fair market value, and which is the equivalent price that we impose — the use tax on this case.

And interstate commerce actually has no bearing on it because the commerce is at end in both cases.

And what we are equating, we are equating the competitive position of the taxpayers who at the moment of taxation, who had the first taking of an item for use in Louisiana, pay a tax upon that item that they have in that possession there.

I think Your Honor was mentioning a sandwich that you might bring in from Texas yesterday to eat in Louisiana.

Well, let’s see how serious this is because — let’s say you brought — you can buy in Louisiana 12 loaves of bread for $3.

You go out-of-state and you buy the flour, and the salt, and the milk, and you come back into the State and you make your 12 loaves of bread.

You bought your flour and component parts of your 12 loaves of bread for 50 cents outside of the State.

You have 12 loaves of bread in both cases, in the case where you yourself made the bread.

You paid one cent.

In the other case where you bought it in Louisiana, you paid six cents.

If there’s a discrimination Your Honor, it’s working both ways.

It’s working against the sales taxpayer of the completed item as well a use taxpayer on a completed item as of the moment it comes in.

There’s no discrimination against the interstate commerce in the case that I just gave Your Honor, it’s the man that pays the use tax that has an advantage.

And actually, there’s no advantage as far as revenue is concern to the State in this loophole if we might call it that, because Louisiana would be losing taxes by not taxing — by not looking to the final product that the user of component parts might be wanting to make.

All we’ve done is — as I think the legislature has done is giving an easy way to administer tax.

In other words, if we want to look to the end product, we would have — anybody that bought something that might be a component part, they would have to declare what they were going to do with it.

We’d say, “Well, if you’re going to make a truck out of that, well you must tell us when the truck’s completed, we want to come see what you made to see with the fair value of it is.”

Then — and as I point out, it works both ways.

It doesn’t work against interstate commerce.

It works for interstate commerce.

It is something that’s available to anyone, whether it’d be Louisiana resident or a non-resident.

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Chapman L. Sanford:

It’s a loophole that’s available to anyone.

It’s a loophole that’s not being used by anyone to our knowledge.

Earl Warren:

Mr. Sanford, am I correct in assuming that that this use tax, the incidence of it is the moment it comes into your state and is available for use?

And that at that time, you have no concern over where it was manufactured or how it was manufactured, or how it was acquired, or whether it was acquired cheaply or whether it was acquired expensively, do you put the tax on the actual value of the commodity, whatever it is as it comes in to your State.

And that you would do the same thing — you do exactly the same thing for any product that is sold under your sales tax?

Chapman L. Sanford:

That’s correct Your Honor except for one thing.

We will — we do give a tax credit for any similar taxes paid to another State.

Earl Warren:

Yes, yes.

I understand that.

Chapman L. Sanford:

Which we feel in getting to the casual sale aspect for a moment makes the casual sale —

Earl Warren:

Well, I am — I suppose then if the petitioner was to prevail, this would apply not only to a situation like his, but would apply to thousands of items in your State.

And I wonder if it would apply to situation like this if a person had an old automobile and he sent to Detroit for an engine, to replace the engine that was is in it and he brought it in there to Louisiana.

He would have to pay on the actual value of that engine which would include labor and shop overhead and every thing else where if he built the same thing in Louisiana, he wouldn’t have to pay for any sales tax except on the parts that go into it.

Chapman L. Sanford:

Yes sir, that is correct.

And it would apply to —

Earl Warren:

To almost anything.

Chapman L. Sanford:

Anything, right.

Anything that someone purchased something that he may improve in any way.

Earl Warren:

Yes, yes.

That’s (Voice Overlap) —

Chapman L. Sanford:

And created —

Felix Frankfurter:

In what (Inaudible).

Chapman L. Sanford:

And that’s why —

Earl Warren:

So this isn’t really as peculiar a situation as one might think?

Chapman L. Sanford:

(Inaudible).

Not at all and we were surprised by the Alabama case.

But Ala — if the Alabama case, there’s one thing different about the Alabama situation and that’s that they don’t give a tax credit for taxes paid.

Earl Warren:

In other states?

Chapman L. Sanford:

In other states.

Earl Warren:

I see.

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Chapman L. Sanford:

And it may or may not make a difference but they don’t and we do and if they can show they pay a tax on that airplane — that a tax having paid on that airplane we’ll say, “Fine, you get a credit for it up to 2%.”

But it would apply to any situation whether you import it or bought, let’s say retail it that a person might improve or increase the value of by applying his own work.

It — it’s not really designed in any way to favor the industry in Louisiana or to increase the revenues in the State.

Felix Frankfurter:

Is this used tax, the incidence of this tax — let me ask you this, is the incidence of this tax is what it means to Halliburton in dollars and cents the same as though they brought this stuff in and sold it to the owners of oil well instead of giving the service on (Voice Overlap) —

Chapman L. Sanford:

Yes sir, that’s correct.

Felix Frankfurter:

As though they have sold it.

Chapman L. Sanford:

As though they sold it.

Felix Frankfurter:

Now — but in — and therefore, the sale of the same combined aggregation of things if sold in Louisiana would be subject to the same tax, the same rate on the same basis, is that right?

Chapman L. Sanford:

Yes sir, I would correct —

Felix Frankfurter:

But what I want to — what troubles me is that I don’t quite understand but you can say you treat it as though there was a sale in Louisiana when there wasn’t a sale.

And I want to know what the comparable thing to that kind of an arrangement is in Louisiana with reference exclusively to Louisiana factors or can’t you compare them?

Isn’t there any such thing in Louisiana as the rental of this kind of equipment?

Chapman L. Sanford:

I don’t know that I understand the question Your Honor but —

Felix Frankfurter:

If it’s not a sale in Louisiana.

Chapman L. Sanford:

It’s a use in Louisiana.

Felix Frankfurter:

If a — it’s a use tax based on the value of something that’s rented, is that right?

Chapman L. Sanford:

Well, no matter what they do with it Your Honor.

Felix Frankfurter:

But they don’t sell this, do they?

Chapman L. Sanford:

No sir.

Felix Frankfurter:

In effect, doesn’t sell it.

Chapman L. Sanford:

No sir.

Felix Frankfurter:

It rents it to someone else.

Well I don’t think they even rent it Your Honor, they use it themselves because I don’t believe they were —

Chapman L. Sanford:

Well, they use themselves?

Felix Frankfurter:

In other words, they are in business there.

They put it on — people call in and say, “We need some cement.”

Chapman L. Sanford:

I thought there was a contract, with whom was the contract?

William J. Brennan, Jr.:

Is this like a plumber who brings his equipment to do a certain job that’s —

Chapman L. Sanford:

That’s the way I understand it.

Earl Warren:

Or a major —

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Felix Frankfurter:

(Voice Overlap)

Earl Warren:

— contractor who — a major contractor who comes in to do a big job, he brings —

Chapman L. Sanford:

That is correct.

Earl Warren:

— his own equipment in and uses them there, is that —

Chapman L. Sanford:

Uses his own equipment.

Earl Warren:

Yes.

Felix Frankfurter:

Now — alright, take that situation —

Chapman L. Sanford:

Well sir —

Felix Frankfurter:

Take that — take the same thing in Louisiana, a local contractor using the same equipment, what kind of a tax do you impose on him for the use of that equipment?

Chapman L. Sanford:

A local contractor Your Honor who has — doing exactly the same thing.

In other words, he is building it in Louisiana from component parts and using it in Louisiana, would have paid a tax upon the tangible personal property at the time it came in to — made up the component parts based upon their fair market value at the time of taxation when it first —

Felix Frankfurter:

But not for the —

Chapman L. Sanford:

— came in for use.

Felix Frankfurter:

— total — not for the total aggregate.

Chapman L. Sanford:

In that case Your Honor, he would not have had to pay on the total aggregate.

Felix Frankfurter:

Alright.

So here, you’re imposing an exemption on the aggregate when you do not do it to the comparable aggregate in Louisiana, is that right?

Chapman L. Sanford:

If it — if it’s a comparable Your Honor that’s correct.

But I don’t believe that the situations are comparable.

Felix Frankfurter:

You mean it can’t exist, can’t be like that?

Chapman L. Sanford:

No, because — no, a man can’t do that in Louisiana in the – in Halliburton’s case, they’re producing the item for their use.

They bring it in to Louisiana.

We are equating — what they bring in to Louisiana is not — these nuts and bolts or anything like that.

We are looking at it as of the time that they bring it in.

Felix Frankfurter:

Well, I’m assuming — please correct me or change me, I’m assuming that Halliburton has a place in Louisiana.

They transfer, they listen to your apparent call and come over, put up their shop there, build all these things and do the exactly the same thing with reference to the oil well.

What would they be taxed on, on what they purchased of the component parts of the total, is that right?

Chapman L. Sanford:

That’s correct.

Felix Frankfurter:

And that’s a very different thing from what the aggregate is worth?

Chapman L. Sanford:

That’s correct.

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Felix Frankfurter:

Alright.

And your — then the — the arithmetic is not an equation.

Chapman L. Sanford:

The arithmetic, no sir it’s not an equation.

Felix Frankfurter:

Alright.

Chapman L. Sanford:

The mo —

Felix Frankfurter:

That’s all I’ve been trying to get into my head and now understand your justifications.

The justification that you’ve given, I do understand —

Chapman L. Sanford:

Right, well —

Felix Frankfurter:

— namely that if they were residents in Louisiana then they’d be subject to some other tax as I understand that.

That’s a very different defense and to say that the sales tax equals the use tax.

Chapman L. Sanford:

Well —

William J. Brennan, Jr.:

Well, this isn’t your justification, is it?

Or let me —

Chapman L. Sanford:

No.

William J. Brennan, Jr.:

Maybe there’s another one.

I have —

Chapman L. Sanford:

The difference Your Honor is in the point of time.

William J. Brennan, Jr.:

Well may I ask, obviously your sales tax does not reach labor and overhead, does it?

I mean labor and overhead as such are not subject to a sales tax.

Chapman L. Sanford:

Exactly our point.

William J. Brennan, Jr.:

What’s — subject to a sales tax is tangible property in the case of a sale when bought by a Louisianan from outside the State, he pays a — on the sales price and the purchase price to him which ever the — but he has to pay for it.

That is the measurements of the value against — it was the 2% as applied.

Chapman L. Sanford:

Yes, sir.

William J. Brennan, Jr.:

Is that it?

Chapman L. Sanford:

That’s correct.

William J. Brennan, Jr.:

Now, then when he walks into the State with something already assembled which he’s going to use there.

I understood your justification is you’re applying the 2% for the reasonable value of that property when he brings it into the state and uses it there.

And you say that’s the same thing and there’s no discrimination that even though the dollar result are maybe as Justice Frankfurter has said different.

Chapman L. Sanford:

That’s correct.

William J. Brennan, Jr.:

Is that it?

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Chapman L. Sanford:

The dollar result —

William J. Brennan, Jr.:

The justification is not that the local fellow has to pay other taxes.

Chapman L. Sanford:

No, that’s not my justification, what I’m —

Felix Frankfurter:

Well, you’ve made that point which is a very important one in the —

Chapman L. Sanford:

Well —

Felix Frankfurter:

— (Inaudible) of law.

Chapman L. Sanford:

Well — right.

I do make it if it — if these are two comparables, I want to make it.

Felix Frankfurter:

But they are very different things and you make it because they’re not comparable.

And one of the points about the Commerce Clause is that I have a right to go outside the State and get certain advantages by coming across the borders.

That’s the point about the Commerce Clause.

Chapman L. Sanford:

I — I make that argument if they are not comparable of course Your Honor the point I — I do make to point also that the point of time — actually its almost an accident of time and place, the — of which (Voice Overlap) —

Felix Frankfurter:

Well but the accident is that it’s across state line, that’s the accident.

Chapman L. Sanford:

I think not Your Honor because the sales tax applies to items which are coming in interstate commerce in the exactly —

Felix Frankfurter:

But you’re not taxing —

Chapman L. Sanford:

— the same way.

Felix Frankfurter:

— the same items.

Tom C. Clark:

Suppose a resident of Louisiana brought this machine in, brought it in, (Inaudible) the same as Halliburton?

Chapman L. Sanford:

The same as Halliburton Your Honor.

If a Louisiana resident produced the thing outside and brought it in, as a matter if he produced it inside, took it to Texas and then brought it back in, you’d probably have to pay the tax.

William J. Brennan, Jr.:

Well, as a matter fact the — what is Halliburton’s status.

I don’t know if its qualified (Voice Overlap) —

Chapman L. Sanford:

He’s qualified to do that.

William J. Brennan, Jr.:

— of a resident for purposes of your — for your —

Chapman L. Sanford:

Oh, he’s qualified to do business and he’s doing business in fact.

William J. Brennan, Jr.:

But that isn’t your justification either.

You’re not justifying that is a domesticated corporation?

Chapman L. Sanford:

No sir.

William J. Brennan, Jr.:

Then what’s the relevance of that?

Earl Warren:

Mr. Sanford may I ask you this, another simple transaction.

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Earl Warren:

We have thousands of youngsters who make radios these days, and they buy all the parts separately and put them together and get a good radio.

Now, let’s say that a youngster does that and makes one that — makes a radio that is exactly comparable to one that is sold in the stores of Louisiana.

I’m talking about the Louisiana boy in Louisiana.

Now, he — if he buys one of those in the store, he has to pay just as you have charged Halliburton here, for everything that goes into the cost price of that radio, does he not?

Chapman L. Sanford:

That’s correct.

Earl Warren:

And including the profit that the man at the store makes.

Now, on the other hand, if he goes to a hardware store and buys each one of those parts separately and puts them together himself and makes his own radio, then he has to pay the 2% tax on every item that goes into that thing.

But that you — it is no longer — it isn’t the sales tax when he puts them together so you don’t charge him for that.

Chapman L. Sanford:

That’s correct.

He would have already paid that.

Earl Warren:

He would already have paid for everything that was sold to him.

Chapman L. Sanford:

That’s right, whether he’s from Louisiana or anywhere else.

Earl Warren:

Yes, whether he’s in interstate commerce or intrastate commerce, not a Louisiana citizen or otherwise.

Chapman L. Sanford:

That’s correct.

Earl Warren:

That is correct.

Chapman L. Sanford:

That is correct and that’s our point that we view —

Felix Frankfurter:

Yes but isn’t — but that — that isn’t the end of the matter, because you’re saying in one case you taxed for sales of an organic of a completed thing.

And the other thing you taxed for sales of item with which I can do what I pleased by — could destroy them, to eat them if they’re edible, to leave them by around loops, or make a contraption of my own, isn’t that true?

Chapman L. Sanford:

In each case, we tax sale.

Felix Frankfurter:

So you’re comparing two different things?

Chapman L. Sanford:

No, we’re taxing the sales Your Honor.

Felix Frankfurter:

Yes, but you’re taxing the sales of different things.

Chapman L. Sanford:

Well, certainly —

Felix Frankfurter:

One thing to compare the sale of a radio or of a TV set is another thing to compare the sale of the individual item with which on — had liberty to do what I damn please.

But that isn’t — you don’t — therefore, you say you compare what one fellow buys, item one, two, three with the imposition of a tax on what is made out of one, two, three, and they’re very different things.

Hugo L. Black:

May I ask you this?

While in this case, Halliburton has no competitor, manufactures these themselves and then go to Louisiana.

The rule as before us would apply to many such transactions where there are half a dozen different manufacturers.

Suppose Halliburton had bought this machine from someone else in the State of Oklahoma and had brought it in to use it, what would’ve the tax been then?

Chapman L. Sanford:

Identical.

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Hugo L. Black:

Identical.

Now, there are many inferences, are they not in which just such things occurred?

Chapman L. Sanford:

Yes sir.

Hugo L. Black:

How would you figure out this case and how is — how — under that rule, how would you figure that out?

Have you got to look back to see how many items went in it that you would’ve charged the sales tax on and —

Chapman L. Sanford:

Under the rule they’re asking for —

Hugo L. Black:

Louisiana has to look in to it and suppose it’s an automobile.

This is partly an automobile (Inaudible).

Chapman L. Sanford:

Under the rule —

Felix Frankfurter:

(Inaudible)

Chapman L. Sanford:

— they’re asking for, that’s what we’d have to do.

Hugo L. Black:

You would have to find out what kind of tax would’ve been paid in Oklahoma and Louisiana on the various items had they been purchased there, and then equates your tax arithmetically to the fraction, the part of opinions with aggregate of those items?

Chapman L. Sanford:

That’s what they’re asking for Your Honor and that’s we would have to do it if that was the rule.

Hugo L. Black:

I don’t see — there may be another way and I was asking you that because I was trying to find —

Chapman L. Sanford:

I know of no other way.

Tom C. Clark:

Do you have a payroll tax —

Chapman L. Sanford:

Oh, of which —

Tom C. Clark:

Tax on payrolls?

Chapman L. Sanford:

We do.

Tom C. Clark:

Of labor in — you do?

Chapman L. Sanford:

We do.

Tom C. Clark:

Well, if it’s made in Louisiana, (Inaudible) tax on it, put it on this labor.

Chapman L. Sanford:

By —

Tom C. Clark:

(Inaudible) company purchased it for their own use, so Louisiana people do pay a tax on this labor, don’t they?

Chapman L. Sanford:

Well not — it’s not a comparable tax Your Honor.

It’s not —

Hugo L. Black:

Sales tax should be comparable, wouldn’t it, on their machines, on the completed machines?

Chapman L. Sanford:

Yes.

What we are saying that all items where the —

Hugo L. Black:

What would be the tax on a completed machine has it been made and manufactured in Louisiana and sold it?

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Chapman L. Sanford:

Identical to the tax that we’re charging.

What we are saying Justice Frankfurter is that all items whether they are fruits, (Inaudible) apples or oranges or hardware, whatever it is at the moment of sale enjoy the same position as far as the tax is concerned that at the moment of sale or at the moment of use, they’re in the same position.

And actually, we can take the rule maybe and run away back as far as the piece of steel is concerned then maybe no tax would be due at all if we’re going to take out the labor and overhead.

We get it back into — we’d get it back into the ground and then we don’t tax anything but movables or tangible personal property and maybe on a piece of steel, no tax would be used at all.

As of the moment of taxation Your Honor, all items enjoy the same position and we look at it what it is at that time and it doesn’t affect interstate commerce at first because it applies both ways.

Potter Stewart:

Mr. Sanford, Mr. Justice Black asked you, what would be the case if Halliburton had purchased this equipment in Oklahoma from another manufacturer and you say the tax would be identical, is that quite right?

I thought the tax then would be measured by the price, the purchase price?

Chapman L. Sanford:

Well, not — of course, no.

It’s a fair market value as of the time it comes into Louisiana.

And our Supreme Court clarified that for us and said that the cost price meant fair market value as of the moment it came in and if it had incurred any depreciation —

Potter Stewart:

(Voice Overlap) purchased and brought in, thought it was new, it would be the purchase price.

Chapman L. Sanford:

It will be easy to determine that way, yes sir.

Potter Stewart:

That would be measured by the price.

Chapman L. Sanford:

Right.

Potter Stewart:

So you wouldn’t go in all of these formulas you’ve gone into with — in this case because price would also include a profit, isn’t it?

Chapman L. Sanford:

Right, in that case but —

Potter Stewart:

In those cases at least that you’ve — so wouldn’t be the same, would it?

Chapman L. Sanford:

It would be the same Your Honor.

Oh no, actually the measure Your Honor, what I’m trying to say is that the rule is that if the fair market value when it gets to Louisiana, that’s the — that’s what we’re going to put it on.

Now, we may well say administratively, well the fair market value is what you paid for because that’s what you are willing to pay for it.

Potter Stewart:

Had it been purchased from another manufacturer in Oklahoma.

That was Mr. Justice Black’s hypothetical case

Chapman L. Sanford:

Right, but if they could.

Potter Stewart:

Here, it was manufactured by Halliburton in Oklahoma, wasn’t it?

In this case —

Chapman L. Sanford:

Right.

Potter Stewart:

— before us?

Chapman L. Sanford:

Well, the tax in — as far as what we could administrate to show the tax would be a little less in Halliburton’s case then if they had purchased it.

Tom C. Clark:

You just take the price of evidence of fair market value?

Chapman L. Sanford:

Yes sir.

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Earl Warren:

May I ask this Mr. Sanford?

If two persons were bringing in the same commodity, one of them bought from a manufacturer and the other one bought from — at a bankruptcy sale let us say, and the prices were very considerably different and they came to the border at the same time, would you make a difference between the value of those two things if they are identical for tax purposes or would —

Chapman L. Sanford:

I don’t know what we are going to do when that problem comes up —

Earl Warren:

I see.

Chapman L. Sanford:

— Your Honor.

And if it does comes up, I don’t know what our Court is going to do, but they have said that is fair market value —

Tom C. Clark:

Yes.

Chapman L. Sanford:

So when we start increasing the value on top of someone’s actual cost, I don’t know what the results will be.

Earl Warren:

Yes.

But the only the reason I asked you was this, as to whether you treat what a man paid for it out of the state as the — as conclusive on the value in Louisiana or whether you yourself judged the value of it and only use cost as evidence of value.

Chapman L. Sanford:

I don’t think we treat it as conclusive Your Honor but in making our audits, we pick up that price.

And if they come in and show a lesser value, well then we probably go along with them.

If they show a depreciation, we’ll reduce the amount that we picked up.

Earl Warren:

Yes.

Chapman L. Sanford:

I — we have never tried to increase the value or say that it is worth more than the paid for it.

Earl Warren:

You never have done that?

Chapman L. Sanford:

Never have done that and of course, we’re not set up —

William J. Brennan, Jr.:

Mr. Sanford, suppose you had — in this case, Halliburton brought in two identical pieces of equipment, one to sell, the other to use.

They’re identical pieces, say made — put together in Oklahoma by Halliburton.

It sells one of them, to measure the tax I gather from what you have said the case of the machine sold, it’d be 2% of the sales price, is that right?

Chapman L. Sanford:

That’s correct.

William J. Brennan, Jr.:

Now, on the use of the other identical piece, would the measure of value of the piece used be the sales price of the other piece?

Chapman L. Sanford:

I think that then we would have evidence which we don’t have now because there are no sales.We would have evidence of what the fair market value is.

Felix Frankfurter:

But the same fellow who bought — the rival assuming, there was a rival, maybe this was too hypothetical a case, to a sale the statute on, of the facts on.

But the rival in Louisiana, if he does everything that Halliburton did in Oklahoma would not be subjected to the kind of tax, leave out on account, all of the taxes in Louisiana.

He would not be subjected to the kind of tax namely the value of the parts put together treated as a whole as though it was sold, is that right?

I — I’m not drawing an inference on it.

I just want to know whether that’s right, is that right?

Chapman L. Sanford:

No, sir.

Felix Frankfurter:

Alright now, suppose it’s —

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Chapman L. Sanford:

The tax — I don’t know if you’re asking again the same question about the ultimate mathematical amount of the tax.

Felix Frankfurter:

That’s what I’m talking about.

Chapman L. Sanford:

If you’re talking about the ultimate mathematical amount of the tax, Your Honor you are right, it is right that it is the difference —

Felix Frankfurter:

And therefore — however, I’m — that therefore, I’m not saying that this has answered the problem, but the fact therefore is that the advantage of having an allegedly free market between states would put that fellow who does all this in part in Oklahoma, and then comes into Louisiana at a disadvantage because he did it in Oklahoma instead of in Louisiana.

I’m not saying that that’s constitutionally bad.

I’m just saying that that’s the result, isn’t it?

Chapman L. Sanford:

Without regard to any other taxes.

Felix Frankfurter:

Without regard to any other taxes.

Chapman L. Sanford:

And unlike Halliburton, he operates only in Louisiana, he do –he isn’t —

Felix Frankfurter:

That’s right.

Chapman L. Sanford:

And without regard to any of the facts, it seems that he would have an advantage due to his own ingenuity of location.

Felix Frankfurter:

Well, he’s being a citizen of United States you mean, which the whole point is that you got to — suppose it be a free market that he’s entitled.

The question is whether he’s entitled to that event, what you call accident (Inaudible)–

Chapman L. Sanford:

Well I — yes.

I don’t know that it’s necessarily Your Honor.

Felix Frankfurter:

I’m not reaching a legal conclusion.

I’m trying to understand the problem.

Chapman L. Sanford:

That is the problem.

Felix Frankfurter:

And you say very properly —

Chapman L. Sanford:

That is the problem.

Felix Frankfurter:

You —

Chapman L. Sanford:

That is the problem.

Felix Frankfurter:

You say very properly without regard to any other taxes because I’m very receptive to that line of consideration which had been sought to be brushed aside.

It’s very important in these matters.

Namely, that you’ve got to consider a tax in relation to the whole tax structure.

Chapman L. Sanford:

That’s correct.

That is the problem.

It does —

Felix Frankfurter:

Alright.

Chapman L. Sanford:

— the existence of what might be called a loophole.

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Felix Frankfurter:

I just wanted to isolate the problem —

Chapman L. Sanford:

Exact discrimination.

Felix Frankfurter:

— by not getting confused with a lot of words.

John M. Harlan II:

Does Halliburton which is qualified as I understand it, domesticated in Louisiana, does it pay other taxes, excess taxes?

Chapman L. Sanford:

Oh, yes sir.

John M. Harlan II:

It pays — this is the only tax he pays?

Chapman L. Sanford:

Not at all.

All my point is that — for example, it does pay income tax.

I suppose that its profit structure is such that —

John M. Harlan II:

He pays a full (Inaudible) of taxes that are applicable to a domesticated corporation.

Chapman L. Sanford:

Right.

And in (Voice Overlap) —

John M. Harlan II:

But you’re different —

Chapman L. Sanford:

It’s a tax —

John M. Harlan II:

— from the taxes that they’re paid by a domestic corporation.

Chapman L. Sanford:

That’s correct.

John M. Harlan II:

So when you say in relation to the whole tax structure, you — I don’t see where that — and that is your argument, I assume.

Chapman L. Sanford:

Oh well.

Well Your Honor —

John M. Harlan II:

And you’re not relying on that tax.

Chapman L. Sanford:

I’m — well, what I’m saying is that I don’t believe that the existence of the so-called loophole, it is discriminatory.

But if it is —

John M. Harlan II:

Really the nub of the issue between you two gentlemen is what you compare.

You say that the out-of-state use tax to be compared dealt with the sales tax would be applicable if the out-of-state user actually sells, that are doing what Halliburton did.

And they — your opponent says that that isn’t a fair comparison in order to be compared with the intrastate use taxpayer who is circumstanced as Halliburton is with reference to the non-sale of the use of this material.

Isn’t that the difference between you?

Chapman L. Sanford:

Well, there’s that — is that a difference.

I will — do want to comment on the other — of the tax structure.

They pay a certain rate of tax based upon apportionment formulas, their income tax and their franchise tax.

They pay their use tax depending upon what they do have there.

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Chapman L. Sanford:

If they had more there, of course they would have a greater tax, property taxes or ad valorem taxes.

If they had more there, they would pay use taxes on tools and machinery.

If they had wages there and employees there and a factory there, they would have their — the apportionment factor for income and to franchise tax purposes would be greater also.

John M. Harlan II:

Yes.

Chapman L. Sanford:

So there would be a difference.

I don’t want to say that they certainly do pay taxes now but it’s apportioned according to what they do there.

John M. Harlan II:

Right.

Felix Frankfurter:

Do you deal with this question because I thought you’ve yield at a little (Inaudible) until your last remarks with Justice Harlan’s suggestion.

This is the question of the tax structure is irrelevant because you’re authorized to do business in Louisiana.

That is, it’s irrelevant only for two basis of taxation between a domestic domiciliary, domiciliary corporation and an authorized corporation are the same which I take is they’re not, are they?

The taxes that a domestic corporation pays and that of a corporation or upon corporation pays, they’re not the same, are they?

Chapman L. Sanford:

No, they’re not.

Felix Frankfurter:

Would be very strange, Louisiana would be quite alone if it did.

Chapman L. Sanford:

Right, that — they’re not.

Potter Stewart:

Well, none of that, as a matter of that, as in this case, either by stipulation or evidence or anything else, is it?

Chapman L. Sanford:

That’s correct.

Potter Stewart:

None of it?

Chapman L. Sanford:

None of it.

Felix Frankfurter:

Well, when considerations like that had been used in tax cases, I’m not sure that they’d been introduced in evidence.

Chapman L. Sanford:

No, I think —

Felix Frankfurter:

A case comes here from a State and therefore we can take judicial notice to all the tax laws of the State.

Chapman L. Sanford:

I would think so.

Actually when the stipulation was made, I’m certain that our argument was going to be made simply as to the fact of them all.

And that — which is actually the reason that we conceded the meaning of those words in the stipulation, they would not be taxed upon labor and shop overhead.

I don’t know what it means.

Felix Frankfurter:

What case have been in this Court have shed light on the problem as we now have it isolated or narrowed, whichever is — (Inaudible) suppose in the questions put Justice Harlan recently and what I put to you finally.

What case had shed most light on that problem namely, when comparing exactly the same economic incident, the same economic transaction, there is a difference in treatment by the state of the out-of-stator and the in-stator.

Chapman L. Sanford:

Oh, I’m —

Felix Frankfurter:

What case had shed most light on that problem?

Chapman L. Sanford:

You’re talking about those that consider the entire tax structure in a tax case.

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Felix Frankfurter:

Well, I don’t mean that.

But I mean the point that you’re making —

Chapman L. Sanford:

The point that I’m making.

Felix Frankfurter:

Yes.

The point you’re making, what you finally have stated is that the State of Louisiana has a right, has power under the constitution to frustrate, to deprive if you will, to deny the fellow who comes in from the outside who have had the benefit of having been in the outside.

What’s the — what decision of this Court shed any light on that subject?

Chapman L. Sanford:

Well Your Honor I haven’t gone into that, but I’m not making that point and I don’t say that — I don’t say that that’s the case here at all.

Felix Frankfurter:

You’re not making that point but that’s going to introduce (Inaudible).

Potter Stewart:

Well, (Inaudible).

If this has nothing to do with whether the person is resident or non-resident of the State, does it —

Felix Frankfurter:

It does not.

Potter Stewart:

— this applies —

Felix Frankfurter:

Everything (Voice Overlap) —

Potter Stewart:

— this question would arise if a citizen and resident of Louisiana who had live there all his life whether he’d be an individual person or corporation, went to Oklahoma and manufactured some for his own use —

Chapman L. Sanford:

That’s correct.

Potter Stewart:

— has nothing to do with residence in or outside the State, does it?

Chapman L. Sanford:

That is correct Your Honor.

Felix Frankfurter:

But if the re — if the fellow does that from Louisiana and goes to Oklahoma and picks up all these pieces and then builds a thing of his own, what would he be taxed on in Louisiana?

Chapman L. Sanford:

Whatever he brings in just like anyone else who might bring in something whether it’s a Louisiana man that goes in and gets it — brings it in or whether it’s a foreigner that goes there and get the —

Felix Frankfurter:

That is what you’re taxing Halliburton on.

You’re taxing him on the value of his aggregated equipment.

And the Louisianan, would you tax the Louisianan on its use of that?

Chapman L. Sanford:

Yes sir, we would tax a Louis —

Felix Frankfurter:

According to the sales value if he’s ought to sell it?

Chapman L. Sanford:

If he brought that same item in, he would be taxed identically to them.

Potter Stewart:

And this is applicable to me, traveling and being in Louisiana a day, staying on a hotel room or it’s applicable to somebody who’d lived there for 75 years, we’re not talking residency or domicile has nothing to do with the problem.

Chapman L. Sanford:

Has absolutely nothing.

Felix Frankfurter:

But if it was all made in Louisiana, it’d be different.

Tom C. Clark:

A different transaction too.

Chapman L. Sanford:

That’s what we’re saying as of what — the tax is — the tax they do pay Your Honor is on the things that they used in it’s an identical tax.

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Felix Frankfurter:

I’m not talking about the traveling of the person whether he’s resident of Louisiana or not, but where the transaction takes place?

Chapman L. Sanford:

The transaction that — the transaction that is taxed Your Honor is the first use and if the tax is identical for everyone including the local manufacturer on its first use of tangible personal property, he may eventually end up with something that is either greater value or lesser value.

But this is at a point after the tax has been imposed.

I would like to say just a few words.

Now, I see my time is nearly up.

About the casual sale aspect and that’s the airplane that was purchased in another State at a casual sale and when it was brought in, we imposed the used tax as of the moment it became part of massive property.

Of course the same argument made before applies here because it’s — the purpose is to see that everyone, all properties had been the subject of a 2% tax.

What makes — the way we handle this, I think and which is unlike Alabama, constitution of the fact that we give a credit, we offer a credit.

If they tax — if that product has ever been to subject of a 2% similar tax, or any portion of it anywhere else, we give the credit.

Alabama does not give the credit.

The cases except for that point that they don’t give a credit, the case is directly against us, the Alabama case, the Bay Towing case is directly against this.

But the — in our case, if they show the credit bearing the exact same position as anyone who would have purchased a similar item in the State —

Potter Stewart:

The administrative practice of these other states is against you too?

Chapman L. Sanford:

Correct.

Potter Stewart:

Ohio and California?

Chapman L. Sanford:

It is.

But actually California offers no credit, Ohio offers no credit, North Dakota does.

Potter Stewart:

Offer credit.

Chapman L. Sanford:

He gave — he said that — the stipulation says that, “If this had been purchased in Louisiana, there would’ve been no tax on it.”

We agree on casual sale in Louisiana would not have borne a 2% tax to Halliburton.

But the person that sold at a casual sale in Louisiana would have already paid the 2% tax on it, and it would have borne 2% tax.

And he gave the situation I think of selling, he’s tried to be here and — as compared to selling it back home, well, it would’ve already borne a 2% tax.

I would — had a credit and I don’t have to pay a use tax on his time when I take it back to Louisiana with me, because I’m entitled to the credit.

But we feel that the credit does equate to tax burden on all competitive people who may be using tangible personal property.

If it has borne 2% tax and they bring it in, we could give a credit.

In this case, it did never bear it so we imposed a 2% tax to be on equal basis with every other taxpayer that has an airplane like that.

Hugo L. Black:

Do you have a general personal property tax in Louisiana (Inaudible)?

No sir, for businesses only, pay it personal property tax, but there’s no personal — there’s ad valorem tax of course on real estate, but not on loophole property.

And that concludes our argument.

Earl Warren:

Mr. Taylor.

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Benjamin B. Taylor, Jr.:

Mr. Chief Justice, member of the Court.

One of the Justices has asked the direct question with whom this Halliburton contract in the use of this equipment.

A contract with oil well operators, they will bring this thing up to an oil well and do whatever needs to be done to an oil well to make it work better.

Felix Frankfurter:

They’ll lend it to other people, wouldn’t they?

Benjamin B. Taylor, Jr.:

No sir.

They’ve — they contract to perform a service, just as a plumber comes out to your house to fix it.

Felix Frankfurter:

Well if —

Benjamin B. Taylor, Jr.:

Let’s take the case of the small boy who bought parts for his radio.

Let us suppose that he was given $50 for a Christmas present and he went downtown and bought $50 worth of parts.

And when he got home with them, he found he couldn’t put them together, so he knew a radio mechanic down the street who could and he persuaded his father to advance him $100.

And so he went down, he had that radio put together in Louisiana, and he ended up with a cost price of $150.

He would have paid a sales tax on that $50 worth of parts and he would not have paid a sales tax on the $100 worth of labor and shop overhead, the cost of putting these loose parts together and to assemble the product.

Now, suppose for the sake of argument the neighboring State, Mississippi had no sales tax.

And suppose that he did not know in Louisiana a skilled mechanic who could put this particular type of radio together.

And so he put the parts in the back of his father’s station wagon and he drove across the Mississippi line to Biloxi where the skilled mechanic lived.

And there, he spent his $100.

So now, he has $150 invested in a completive radio.

And so they put it in the station wagon and they drive back to Louisiana and at the state line, the collector flags him down.

And they do just that by keeping tab on railroad — railway express receipts.

But they flagged him down at the state line and they say, “There, you have a radio and what is your cost price?”

Our cost price is $50 per parts and $100 for labor and overhead.

So the collector says, “Fine, give me 2% of the cost price of $150.”

“Oh, but I’ve already paid it on $50 worth when I bought the parts.”

“Fine, we’ll give you credit for that but we want 2% of this labor and overhead because it was expanded in Mississippi.”

And the man being acquainted with the Halliburton problem says, “Not so.”

Had we employed the people to put it together in Louisiana, had there been no element of multi- activity and no element of interstate movement of goods, there would’ve been no tax on the labor and overhead.

Surely, multi-state activity and interstate movement of goods should not in and of themselves generate a tax where none existed without that element of interstate movement.

Suppose Halliburton in the days before Texas had a sales tax, they’ve only have one for a few months, suppose they brought their factories and their production shops and nestled them right up against the Louisiana line, put the whitewash fence along the line separating their factory from Louisiana.

And suppose just on the other side of that whitewash fence, a competitor setup an identical factory which made the same thing.

Now, Halliburton makes them on the Texas side and imports them into Louisiana for use.

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Benjamin B. Taylor, Jr.:

The competitor makes them on the Louisiana side and uses them in Louisiana.

The labor and shop overhead would not be taxed to the one who operated in Louisiana that is stipulated.

The labor and shop overhead would be taxed under the collector’s position here today.

That one additional inch or actually the crossing of that imaginary state line there, the infinite point of space that is the line would generate the additional tax in view of what the collector has to say.

Now, the reason that there’s nothing in the record here with reference to — no arguments had ever been made before in any court, with reference to these other taxes is because as this Court be judicially notice, here, Halliburton had in this brief tax years, $2,500,000 worth of this type of equipment in the State.

Halliburton is a major operator in the field of oil well servicing.

It has a massive operation in Louisiana.

And as this Court may judicially notice, there would be many thousands of dollars, hundred to thousands of dollars in one form or another derived over the general taxes which would apply to such a massively operating domesticated board corporation.

Earl Warren:

Should that make any difference in the decision of this case?

Benjamin B. Taylor, Jr.:

I don’t think there’s any difference there at all Your Honor.

The argument is — and I would say that apparently opposing counsel doesn’t think so either since that argument has never been advanced at any part of this case until he was mentioned in this Court today.

In our anxiety to get to each point of the case, we have failed to point out what appears to be the collector’s major argument in his brief that what appears to be the major ground for the Louisiana Supreme Court decision.

How do the Louisiana authorities try to justify their flagrant tax discrimination?

Shaken down to its tests, we submit that it is simply this and we quote from the collector’s brief, “The tax,” he says, “Is not upon interstate commerce or is it upon the privilege of use after commerce is at an end.”

This is his primary contention.

He repeats it in the last paragraph of his brief, “The use tax is imposed for one reason only because the property had become a part of the massive property in the State”, and the Louisiana Supreme Court has adopted that as its major premise.

He — its concluding language.

We conclude that the Louisiana use tax does not infringe upon interstate commerce because the tax matter had definitely come vested in the State.

And they quote the Silas – from the Silas Mason case this language, “The tax is not upon the operation of interstate commerce but upon the privilege of use after commerce is an end.”

But they do not quote Mr. Justice Cardozo’s concluding language which is as follows, “With reference to good move in interstate commerce, they may be subjected”, he says, “Once they are at rest to a non-discriminatory tax upon use of the majority.”

Of course, Mr. Justice Cardozo’s words that commerce is at an end cannot be used to justify discriminatory taxation.

Now, this is not discrimination against interstate commerce because commerce is at an end.

We respectfully submit that this is arbitrary and discriminatory classification for tax purposes, separate discriminatory classification, separate and heavier tax treatment being base solely upon the history of there having been an interstate movement of goods, no matter how thin the argument is sliced.

Louisiana is still demanding in both faces of this case tax money which it would not demand if there were no element of interstate commerce.

Eliminate interstate commerce, both face result no taxation.

Add interstate commerce, both faces result taxation.

If the collector argues and this appears to be his number two position and we quote that the tax operates alike upon all persons and property similarly situated.

Let us examine this “tax classification.”

Classification A of the collector, to be taxed for heavily those who operate in interstate commerce.

Classification B, to be taxed likely or not at all those who operate wholly within the State of Louisiana.

Audio Transcription for Oral Argument – March 26, 1962 in Halliburton Oil Well Cementing Company v. Reily

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Benjamin B. Taylor, Jr.:

As classification A taxpayers, interstate operators are all similarly situated says the collector and they’re all taxed heavily.

Classification B taxpayers, intrastate operators were all similarly situated and they’re all taxed more lightly.

Now, it would seem to us that where the test for taxation is the existence or non-existence of interstate commerce and the Interstate Commerce Clause as the governing principle, we therefore would base Halliburton’s conclusion of unconstitutionality upon the Interstate Commerce Clause.

Nevertheless, quite aside from the Interstate Commerce Clause, we submit that this is the case of growth discrimination of arbitrary classification which is forbidden by the equal protection of the Laws Clause and the Due Process Clause.

Assume arguendo that Halliburton was — were an intrastate operator sitting side-by-side in Louisiana with another intrastate operator, a competitor.

And assume that Halliburton was being taxed three times as much as that competitor or more accurately being taxed upon a pace which is tax exempt to that competitor.

We submit that there’s simply no excuse in law for such discrimination even if there were no element of interstate commerce and a fortiori, the tax discrimination cannot be valid where the — it’s only test for taxation is the presence and absence of interstate commerce.

It seems to us that both the facts and the law are simple and clear cut on both phases of this case.

First phase, labor and overhead.

Facts, Halliburton manufactured outside of Louisiana and Oklahoma.

Second, Halliburton transported in the channels of interstate commerce and used in Louisiana.

Law, movement of goods in interstate commerce ought not in and of itself generated 2% tax on labor and shop overhead which would not had been liberty of no movement to interstate commerce.

Second phase, isolated sales, facts, Halliburton purchased outside Louisiana, in New York and Texas.

Two, Halliburton transported in the channels of interstate commerce.

Three, Halliburton used in Louisiana.

Law, interstate movement of goods by Halliburton and movement of goods in interstate commerce by Halliburton ought not in and of itself generated 2% tax on the transaction, 2% of cost price of the casual sale which would not have existed at all if there were no element of interstate commerce.

Now, Louisiana could avoid tax discrimination here in one of two ways.

Louisiana could add to the tax base of the intrastate business so as to equalize it with the interstate tax — the interstate state business’ taxation.

For example, labor and overhead could be taxed where it performed in Louisiana as well as where it performed outside Louisiana or the isolated sales exemption could be limited — could be eliminated as to intrastate sales thus equalize it.

Louisiana will not follow this path.

The alternative path is the only one left as we see it.

Louisiana can and we submit must eliminate these items from the tax base of the interstate operator as well as the intrastate operator.

Either method would abolish the inequity, the discrimination which complaint is here has made.

But what Louisiana cannot constitutionally do is to include in the tax base of the multi-state operator, the intrastate business concerned, a substantial element while excluding that same substantial element from the tax base of intrastate business whose activities are exactly the same except for the presence or absence of interstate commerce.

Is there any another question that any member of the Court would like to ask as we close?

We respectfully submit that the decision below should be reversed.