Oklahoma Tax Commission v. Jefferson Lines, Inc. – Oral Argument – November 28, 1994

Media for Oklahoma Tax Commission v. Jefferson Lines, Inc.

Audio Transcription for Opinion Announcement – April 03, 1995 in Oklahoma Tax Commission v. Jefferson Lines, Inc.

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William H. Rehnquist:

We’ll hear argument now in Number 93-1677, the Oklahoma Tax Commission v. Jefferson Lines, Inc. Mr. Johnston.

Stanley P. Johnston:

Mr. Chief Justice and may it please the Court:

Before the Court today is the question of whether the State of Oklahoma may constitutionally impose on the in-State purchaser and require the in-State vendor to collect a sales tax on the purchase of bus transportation sold within the State, the tax being measured by the full purchase price of the ticket even though the ultimate destination of the trip, or a portion thereof, is to be traveled beyond the State’s borders.

The facts of the case are basically very simple.

The State of Oklahoma has a general sales tax which taxes the sale of tangible personal property and certain services, including bus transportation by common carriers.

This tax, as most or all common sales taxes, is imposed upon the consumer, is collected by the vendor, it is a percentage of the purchase price, and is added to that.

Sandra Day O’Connor:

Mr. Johnston, does Oklahoma tax the sale in Oklahoma of bus tickets for transportation that is not at all conducted in the State of Oklahoma, that neither begins nor ends in the State of Oklahoma?

Stanley P. Johnston:

Under–

Sandra Day O’Connor:

The ticket is purchased there–

Stanley P. Johnston:

–Yes, ma’am.

Sandra Day O’Connor:

–for transportation outside the State.

Does Oklahoma tax that?

Stanley P. Johnston:

Your Honor, I believe it would if the sale occurs in Oklahoma under the statute.

Sandra Day O’Connor:

Yes, that’s what I asked.

Stanley P. Johnston:

Yes.

Sandra Day O’Connor:

Assume the sale occurs there, but none of the transportation.

Stanley P. Johnston:

Yes, Your Honor, it would.

Under the statute, if the sale occurs in Oklahoma, then the transaction is taxable in Oklahoma.

Sandra Day O’Connor:

Are any such sales at issue in this case, do you know?

Stanley P. Johnston:

They are not to my knowledge, Your Honor.

Under the stipulations that are in the Joint Appendix, beginning at page 3, the intrastate routes and interstate routes that are operated or were operated by Jefferson involve… the intrastate being, of course, totally within the State of Oklahoma, and according to the stipulation the only sales involved in this case were those which originated in Oklahoma and terminated outside of the State.

Sandra Day O’Connor:

The stipulation seems inconsistent with something stated in the bankruptcy court opinion, and I just didn’t know which one to think was the correct one.

Stanley P. Johnston:

I… my memory of the opinion was that it did recognize that Jefferson sold other types of interstate trips in the State of Oklahoma.

For instance, round trips would be one type.

The stipulation wasn’t part of that, but that was a stipulation that is in the record, that these sales, the exact sales in question in this case were all those which originated in Oklahoma and extended outside the State, or had a destination outside the State.

In that respect, Jefferson, while operating in Oklahoma and selling its bus trips and selling its bus tickets from various outlets and locations across the State for both intrastate and interstate trips… that is, extending beyond the State’s borders, collected sales tax only on those bus tickets which were sold for intrastate trips.

Jefferson, of course, had a sales tax permit issued by… as a vendor by the State of Oklahoma, the Oklahoma Tax Commission, and dutifully reported all sales made in Oklahoma, both intrastate and interstate trips.

On the sales tax report, however, Jefferson then deducted those sales which were connected with interstate trips, did not collect or remit sales taxes on those sales, only the net.

Jefferson filed for bankruptcy, and office audits by the tax commission of Jefferson’s sales tax report developed that the interstate trips, the tax was not being collected or remitted, and a claim was filed.

Jefferson objected in the bankruptcy court to the claim.

Stanley P. Johnston:

The bankruptcy court sustained Jefferson’s claim that it violated… that the tax on these trips violated the Commerce Clause.

The court, of course, analyzed the State tax in view of the four-prong test of Complete Auto.

Analyzing and realizing that Jefferson is physically present in the State of Oklahoma when it makes all of these bus sales, these ticket sales, and that Jefferson’s customers are physically present in the State when the sale is made, the bankruptcy court found that this presence satisfied both the nexus requirement of Complete Auto and also established that the State was providing services both to Jefferson and to its customers in connection with the sales transaction, and therefore the fourth prong was satisfied that the tax was fairly related to services provided by the taxing State.

As to the second prong of the Complete Auto test, however, that the tax be fairly apportioned, the court looked at the accepted test of whether or not the tax is internally consistent.

That is whether, if every other State enacted the same tax, would there be multiple or double taxation.

The court found that there is not, because, of course, a bus ticket can be sold in only one State.

As to the second portion, however, the bankruptcy court determined that the tax as it applies to interstate trips was not fully… fairly apportioned because the court envisioned that the tax was essentially the same as the tax in a prior case, Central Greyhound Lines v. Mealey.

However, in the case before this Court today, we are talking about a sales tax.

It is a tax on the consumer.

The taxable transaction is the sale itself, and it is not the thing that is purchased or the use of the thing purchased.

In Central Greyhound–

Ruth Bader Ginsburg:

Mr. Johnston, one more background fact.

In the two bankruptcy proceedings that I think involved another bus company there was a statement that you tax even tickets that were sold outside the State.

Was… the bankruptcy judge thought that the tax reached transportation of… where the ticket was sold out of State.

Was that incorrect?

Stanley P. Johnston:

–I… it’s incorrect under the law, Your Honor, and you’re speaking of the Greyhound case, which is an almost identical case which is currently pending in the Fifth Circuit.

The stipulations in that case were a bit broader than the stipulations.

They did not restrict themselves to trips, only to trips originating in Oklahoma and terminating outside insofar as interstate trips are concerned, but the… I’m sorry–

Ruth Bader Ginsburg:

Does the tax reach, as the bankruptcy judges seem to think, transportation sold in other States, but that occurs at least in part in Oklahoma?

Stanley P. Johnston:

–No, Your Honor, it does not.

Under the statute and under the Oklahoma supreme court decisions the Oklahoma sales tax is effective and applicable only if the sale occurs in Oklahoma, and in this case, that is if the trip is sold in Oklahoma.

That is, if I go and buy a ticket.

I’m not talking, of course, just the piece of paper but what the ticket represents and, of course, in common parlance one does not buy transportation to New York, one buys a ticket to New York.

Ruth Bader Ginsburg:

So this statement, the statute also allows Oklahoma to tax transportation sold in other States which occurs in Oklahoma, that’s just flat wrong, is that your position?

Stanley P. Johnston:

That’s just flat wrong, Your Honor.

Under the statute and under the supreme court decisions in regard to the Oklahoma sales tax, the sale to be taxable in Oklahoma must occur in Oklahoma.

It cannot occur outside the State.

It simply doesn’t apply.

John Paul Stevens:

May I ask if your tax would cover… forget interstate commerce and transportation for a moment.

Supposing you bought your Super Bowl tickets in Oklahoma, would the tax apply, the Super Bowl being played in some other State?

Stanley P. Johnston:

Yes, Your Honor, I believe it would, because my memory of the statute is that it does tax admission to places of amusement, and if the sale were made in Oklahoma, then it would be taxable in Oklahoma, because, as with the Super Bowl ticket or a bus ticket, the way people purchase these services–

John Paul Stevens:

And going back to Justice O’Connor’s question, there doesn’t have to be any part of the service performed within the State?

Stanley P. Johnston:

–Not in such circumstances, where you have certainly physical evidence in the form of the ticket, but legal evidence where the service is bought and paid for and at that point the purchaser has the right to the service and the right to do with that service as he will.

The ticket, for instance, whether it be a football game or a bus ticket, the purchaser once they buy and pay for the ticket they can give it away, they could sell it, I suppose they could leave it in a will.

In either case, I would also suggest that the ticket doesn’t have to be used.

The service doesn’t have to be enjoyed for the transaction to have occurred and for the transaction to be taxable.

In this case, the transportation involved doesn’t have to be used.

It is not a tax on transportation, and that is the error of the courts below in their reliance upon Central Greyhound Lines v. Mealey, because that was a tax on the revenues from transportation.

It was tax… a gross income tax on the bus company.

John Paul Stevens:

So, then, a travel agency doing business in Oklahoma pays the tax on all the sales it makes regardless of what the tickets are?

In other words, somebody buys tickets from an Oklahoma travel agent for use going from New York to London or some place, he’d still pay the tax in Oklahoma?

Stanley P. Johnston:

If it’s in regard to transportation?

John Paul Stevens:

Yes.

Stanley P. Johnston:

Yes, sir, under this statute.

If the sale occurs there, and it would be in that case, as I understand the question, then it would be taxable, yes, sir.

William H. Rehnquist:

Well, exactly what is the provision of the Oklahoma tax, because in answer to that question of Justice Stevens, you said if it applies to transportation, but then certainly a Super Bowl ticket to admit one into the Super Bowl doesn’t deal with transportation.

What is the relevant provision of the Oklahoma tax statute?

Stanley P. Johnston:

As to transportation it is… and that’s contained on pages 2 and 3 of the brief for petitioner… in section 1354, title 68 of the Oklahoma statutes is the general levying statute, which levies the sales tax of 4 percent, it is now 4-1/2 percent of the gross receipts or gross proceeds of sale of a) tangible personal property, c) transportation for hire to persons by common carriers… I’ve omitted the rest of that, but it includes–

William H. Rehnquist:

Well, how would that reach tickets to the Super Bowl?

Stanley P. Johnston:

–In other sections or subsections, rather, of the sales tax statute, the tax is levied on the sale of admission to amusement… sports and amusement places.

I thought I had made that clear.

But it is not in this subsection, but it is within the taxing statute as a specifically enumerated service.

The courts below, both the bankruptcy court, or all three of the courts, the bankruptcy court, the district court on appeal, and then the Eighth Circuit Court of Appeal, all held that the tax was not fairly apportioned under the external consistency test.

All three, however, based their decisions and relied upon the case of Central Greyhounds v. Mealey.

As I believe I earlier said, this was… that case involved a different kind of a tax, a different kind of a taxpayer, on a totally different transaction.

The district court, I believe it was, indicated that it found no substantial difference between a sales tax in this case and a gross income tax in the Central Greyhound case.

Ruth Bader Ginsburg:

With respect to Central Greyhound, is it your position that if New York had made that tax a tax on the sale of the ticket, then it would have come out the other way?

Stanley P. Johnston:

I believe it would, Your Honor.

If it had been a sales tax on the consumer as opposed to an income tax on the provider of the service, then I believe that the focus of the constitutional examination which looks at the transaction would be looking at the transaction involving the consumer and his purchase, as opposed to the bus company and taxing its revenues from the providing of the service, and that, I believe, is the difference.

If it had been a different tax, I believe… if it had been a tax similar to this, then the results would have been different.

Sandra Day O’Connor:

But as a practical matter, what’s the difference?

The measure is the same, which is the sale price of the ticket.

It’s exactly the same measure.

Stanley P. Johnston:

It is, Your Honor, but I believe that under all the precedents you have to look at the transaction that is being taxed.

In this situation, the transaction that is being taxed is the purchase of the service, not the providing of the service nor the making of money from the providing of the service.

David H. Souter:

But there’s no separate transaction in Central Greyhound, is it?

It’s simply the moment at which you do the figuring.

Instead of saying the tax is due when the ticket is purchased, the tax is due when you add up all your gross income and find out what it is.

Isn’t that the only difference?

Stanley P. Johnston:

I don’t believe that that is the only difference.

It certainly has that similarity, Your Honor.

David H. Souter:

Is there… was there any other kind of income that went into gross income in Central Greyhound that is… in addition to revenue from the sale of transportation?

Stanley P. Johnston:

I’m afraid I’m not… I’m not aware that there was.

If there was, I’m not aware–

David H. Souter:

Then I’m not… then, like the court below, I’m not sure what the difference is, then.

Explain that to me again.

Stanley P. Johnston:

–Because in Central Greyhound we are talking about taxing the bus company on its revenues, its gross receipts in that case, not net revenues, but from the providing of… providing its own income, the generation of income, in that case more than one State.

David H. Souter:

Well, is the difference, then, that in the case of the tax here, the bus company is given an authorization to add on the tax up front and state it as a tax when it collects it, as distinct from simply dealing with it as a cost of business and passing it on sub silentio when it figures the price of its ticket?

Stanley P. Johnston:

In this case the bus company is not only permitted to do that, it is required.

It’s a provision of the statute.

David H. Souter:

Well, I realize that, but is that, then, the only distinction between the two?

It’s up front in one case and it’s an unstated cost of doing business which increases the cost of the ticket in the other case?

Stanley P. Johnston:

I think that’s not only correct, Your Honor, but it also is constitutionally significant, because–

David H. Souter:

That’s the only difference.

That’s what I’m trying to get at.

Stanley P. Johnston:

–It is the primary difference, yes, sir.

As far as the economic result of an income tax for a corporation, of course, it is basically always going to trickle down to its customers in the form of higher prices for whatever the corporation is doing.

However, the tax on the corporation’s income, even though the ultimate cost of that tax may eventually increase the cost of its services to the customers, for instance in the Liggett & Myers case, that does not, according to the court, make that a tax on the customer, and I believe we have–

Antonin Scalia:

I thought Greyhound was a tax on the company?

Stanley P. Johnston:

–Central Greyhound was, yes, sir.

Antonin Scalia:

And that this is a tax on the purchaser, not on the company?

Stanley P. Johnston:

Yes, sir, that is correct.

Antonin Scalia:

That’s a big difference.

Stanley P. Johnston:

That is the difference.

Stephen G. Breyer:

Why does that make a difference?

I mean, a State… the State of New York has a big interest, I take it, in the income that its own corporations make, so the connection between New York and its company, Greyhound, is great.

Here, with the sales tax, I guess Oklahoma has far less interest either in the company or in the trip, so if there’s a difference, why does it cut in your favor?

Why doesn’t it cut against you?

Stanley P. Johnston:

The difference is, as far as Oklahoma’s interest, is that Oklahoma is levying a transaction tax on the purchaser in Oklahoma and not on the bus company.

That transaction occurs totally within the State of Oklahoma and nowhere else.

Stephen G. Breyer:

All right.

Is it the case here, I’m not certain, but suppose I’m in Massachusetts and my son’s at school in California, and I think it would be nice to send him an apple every month, so I get these things in the mail you do, they’ll send Washington apples to California once a month.

Can that be taxed in Massachusetts if I buy the apples in Massachusetts?

They’re Washington apples going to California.

Stanley P. Johnston:

I would doubt it.

Stephen G. Breyer:

The answer’s no, I take it.

All right.

Why is it any different if I buy him a haircut once a month?

I mean, suppose I’m in Massachusetts, I think he should get a haircut out at Stanford, so there’s a new service, which there ought to be, that they’ll give him a haircut once a month.

[Laughter]

I mean, does it make any difference?

If you can’t tax the apples going from Washington to California, why should you be able to tax the haircut?

If you can’t tax the haircut, why can you tax the bus trip?

All of those things are bought in Massachusetts.

Stanley P. Johnston:

I think that the difference as it applies to this case, Your Honor, is that in the case of tangible personal property, a sales tax on that, you’re taxing the transfer of the title or possession of that personal property.

Stephen G. Breyer:

In all cases?

Stanley P. Johnston:

The question is, is where does it occur?

Stephen G. Breyer:

Yes, but why should there be a difference, my point is, between the apples and the haircut and the bus trip?

They all take place totally outside the State of Massachusetts, but the sales of each take place within.

Is there any reason they should be treated differently?

Stanley P. Johnston:

Under that situation, Your Honor, yes, I believe there is, because if the sale of a ticket that represents the right to the bus trip on behalf of the customer, if that sale occurs in Massachusetts, according to your example, then the transaction whereby I purchase and acquire all the rights to the thing that I have purchased, that occurs in Massachusetts, and if Massachusetts has the Oklahoma-type sales tax, then it’s taxable there, I submit.

Antonin Scalia:

Why is that different from the apples?

All your rights to the apple are acquired in Massachusetts.

I really don’t understand the distinction you’re drawing.

In fact, I thought you told me earlier that the apple transaction would be taxed?

Stanley P. Johnston:

I’m sorry, Your Honor.

John Paul Stevens:

I thought you told me earlier that a comparable transaction to the apple transaction would be subject to the tax.

I asked you about a Super Bowl ticket.

That’s… I don’t see the difference between going to the Super Bowl in Miami and selling apples in Miami.

Stanley P. Johnston:

Your Honor, I think–

John Paul Stevens:

The right to have the event take place is purchased in your State.

Stanley P. Johnston:

–Yes, Your Honor.

I made the distinction only between tangible personal property and service to this extent, that it’s well settled that for tangible personal property you have the delivery of either title or possession.

That is… and the right to control.

In the situation of the bus ticket and intangibles, intangible services, then we are talking about the same transaction, it’s the same transfer, but it is the right to have and control that service, not necessarily the ultimate enjoyment.

For instance, it is not the tax on the eating of the apple or the riding of the bus.

Antonin Scalia:

You have to make the distinction for personal property because we’ve held that the State where the contract for sale is made cannot impose a sales tax, haven’t we?

Stanley P. Johnston:

I believe you have, Your Honor.

Yes, you have.

If that’s–

Ruth Bader Ginsburg:

Mr. Johnston–

Stanley P. Johnston:

–the only–

Ruth Bader Ginsburg:

–That’s the only reason for the distinction I can see.

I’m still puzzled by the initial question that Justice O’Connor posed and your answer to it.

You do have in the stipulation that here, interstate routes are those which originate in Oklahoma and terminate in a State other than Oklahoma.

Stanley P. Johnston:

–Yes, ma’am.

Ruth Bader Ginsburg:

So does that stipulation mean that what we have been talking about, a ticket purchased in Oklahoma but for transportation between States other than Oklahoma, that that is something that the statute purports to reach but is not at issue in this case?

Stanley P. Johnston:

That is correct, Your Honor.

Ruth Bader Ginsburg:

So the only sales that are at issue in this case are routes that originate in Oklahoma and terminate some place else?

Stanley P. Johnston:

That is what the stipulation covers, and that’s all it covers, Your Honor.

Stanley P. Johnston:

I have no doubt that it’s possible for the sales that were reported during these periods by Jefferson, some of them may have been round trips… round trip… round trips out of the State and back in.

I do not know.

The record doesn’t reflect it.

The only stipulation is what we have before us.

Anthony M. Kennedy:

What are the case authorities that you can point us to that require this distinction between tangible services and the sale of goods, or intangible services, rather, and the sale of goods?

Stanley P. Johnston:

Your Honor, I–

Anthony M. Kennedy:

I take it you’re sticking with that distinction so that if Oklahoma tries to tax a sale for goods that are shipped and delivered in other States, the shipment outside of Oklahoma, the delivery outside of Oklahoma, the receipt outside of Oklahoma but the sale in Oklahoma, I take it you say that’s not taxable?

Stanley P. Johnston:

–If Your Honor… if I understand, this would be, for instance–

Anthony M. Kennedy:

This is–

Stanley P. Johnston:

–a sale in Oklahoma–

Anthony M. Kennedy:

–This is the apple.

Stanley P. Johnston:

–of something that occurred totally outside.

Anthony M. Kennedy:

Yes.

Justice Breyer’s apple hypothetical.

Stanley P. Johnston:

Yes.

Your Honor, it… under the statute, if under all the circumstances of the case the sale occurred, then I believe that where the service were employed or enjoyed would not make a difference under the statute.

Anthony M. Kennedy:

Even if this service were for the delivery of tangible property?

I mean, it’s hard to call that a service.

The apple hypothetical, are you sticking with the answer that that is not taxable?

Stanley P. Johnston:

If a sale were… if I ordered the apple to be delivered from one State to another State–

Anthony M. Kennedy:

You complete the sale in Oklahoma, but the apples are going to be shipped from Washington to California.

Stanley P. Johnston:

–There is a question in my mind whether in that case, although you’re assuming the complete… the sale in Oklahoma.

I’m not sure it would be an Oklahoma sale in that case.

The… for instance, in the–

Anthony M. Kennedy:

Well, why is that different from Justice Stevens’ Super Bowl problem?

Stanley P. Johnston:

–Because in the Super Bowl problem, as the question was posed, the sale was completed.

That is, in the State of Oklahoma, both parties were there, and the transfer of the ticket representing the service and giving the right to the service was transferred from one to the other in the State of Oklahoma.

So as I understood the question, all of the transaction as far as the right to the service occurred within the State of Oklahoma.

Anthony M. Kennedy:

Well, let’s assume the same thing happens with the apple hypothetical.

The deal is made, signed, sealed, completed in Oklahoma, and delivery and receipt to take place outside of Oklahoma, delivery of the goods that are the subject of the completed sales contract.

Stanley P. Johnston:

The cases with which I am familiar do require that there be some sort of delivery, the completion, although the statute requires transfer of either title or possession in the State.

Anthony M. Kennedy:

Okay.

Is that the McGoldrick case?

What are the cases that–

Stanley P. Johnston:

The McGoldrick–

Anthony M. Kennedy:

–you can point us to from this Court that require us to make a distinction between services and tangible goods, if that’s the distinction you want us to make?

Stanley P. Johnston:

–The McGoldrick case would be one case, Your Honor, because the agreement was made first, then the coal was mined or released, then it was shipped from a place out of State into New York, and actual physical delivery of the coal to the buying customer was made in New York, so the interstate portion of that delivery the Court found to be basically incidental and not violative of interstate commerce.

Other cases to which we would point the Court’s attention, and we have in the brief, are those situations involving, for instance, airline fuel in Wardair Canada.

Although the fuel was delivered and sold to the airline in the State of Florida, it was actually used primarily out of the State of Florida.

The courts nevertheless found that it was taxable certainly for domestic Commerce Clause purposes.

There was, of course, the foreign Commerce Clause additional considerations.

And the similar situation in the Itel Containers, where the containers leased were used exclusively in foreign commerce and, of course, we believe that the decision in Goldberg v. Sweet involving the telephone calls is very similar to the situation in this case, because in effect you had a tax there very similar to a sales tax.

It was of an intangible service.

Ruth Bader Ginsburg:

What about the Court’s stress of the credit mechanism that was present in that case and not in this case?

Stanley P. Johnston:

I believe because of the circumstances or the nature of that transaction, and the statute provided the possibility as the Court noted, although I believe the Court said that there was a very, very slight possibility, but a possibility, that an interstate telephone call could be subject to tax in two States, but only two States, and the Court then, of course, observed that even if there was that slight possibility, then the credit provision would act to take care to avoid any actual multiple taxation.

I believe in this case that where you have the transaction… I don’t believe any other State would have nexus to tax the transaction that we’re talking about here, and that is the sale of the trip.

Ruth Bader Ginsburg:

But it would have… would be able to put a gross receipts tax on the company–

Stanley P. Johnston:

It could.

Ruth Bader Ginsburg:

–for the miles in that State.

Stanley P. Johnston:

It could in that event, Your Honor, as I believe most bus companies are entitled to various taxes, and certainly income taxes.

Under the scenario that is adopted by the courts below, if one State taxed a bus company and another State taxed a customer, that amounts to multiple taxation, then obviously one of those taxes has to go, and that I believe is not… this is not what the law says, and it’s certainly not what we have today.

Most companies, if not all companies, are subject to taxes on their income along with other taxes.

This does not, under the Commerce Clause, however, prevent States from taxing their customers when those customers buy products from those companies.

I believe the two different types of taxes are not equatable and, therefore, in this case we do not have the, even the–

William H. Rehnquist:

Thank you, Mr. Johnston.

Your time has expired.

Stanley P. Johnston:

–Thank you.

William H. Rehnquist:

Mr. DeRuyter, we’ll hear from you.

Steven D. DeRuyter:

Mr. Chief Justice, may it please the Court:

The practical effect of this tax and the express language of the taxing statute are the same.

Steven D. DeRuyter:

This is a tax on interstate bus transportation.

However the State of Oklahoma may attempt to labelize or localize the activity which it seeks to impose its tax, this is a tax on interstate activities which occur far beyond the borders of that State.

Now, the lower–

Antonin Scalia:

Would it be the same for an income tax on the revenues derived from interstate transportation?

Are they also exempt?

Steven D. DeRuyter:

–This Court has held that income tax must be fairly apportioned and has dealt with a number of apportionment formulae which it requires that income taxes be subjected to, so the answer to that–

Antonin Scalia:

But the income from interstate transportation is not exempt from State taxes, is it?

Steven D. DeRuyter:

–It is not exempt, no.

Antonin Scalia:

But you’re saying that the… that a sales tax cannot be imposed on interstate transportation.

Steven D. DeRuyter:

I am not saying that a sales tax cannot be imposed on interstate transportation.

I am simply saying that when it is imposed on interstate transportation it must follow the precedents of this Court, the Complete Auto requirement of fair apportionment.

William H. Rehnquist:

What about a… supposing your bus company has a route from Oklahoma City to Dallas, and the bus fills up in Oklahoma City with gas, enough to take it to Dallas, now can Oklahoma tax the entirety of that purchase of gas even though a lot of it is going to be used for transportation in Texas?

Steven D. DeRuyter:

Yes.

The answer to that is yes, because the total delivery of possession of that gas is made within the State of Oklahoma.

That’s similar to the Itel case and McGoldrick and a number of cases where this Court, as the State of Oklahoma has said, the delivery of possession and title, but principally delivery of possession, gives a State the right to impose a tax.

Sandra Day O’Connor:

Well, what about a tax on… an excise tax on interstate phone calls made from or to an in-State address?

Steven D. DeRuyter:

That’s similar to what… the situation that this Court dealt with in Goldberg.

Sandra Day O’Connor:

Exactly, and what did we hold there?

Steven D. DeRuyter:

The Court held there, based on the particular, different facts from this one, that–

Sandra Day O’Connor:

Well, didn’t we hold that the State could tax those calls?

Steven D. DeRuyter:

–You held that the State could tax that service address.

Sandra Day O’Connor:

The whole price of the call–

Steven D. DeRuyter:

That’s–

Sandra Day O’Connor:

–including the portion that covered the out-of-State use of the facilities of the telephone company.

Steven D. DeRuyter:

–That is correct.

Sandra Day O’Connor:

Well, why is this different?

Is it any more difficult to divide up or apportion telephone line charges than highways?

Steven D. DeRuyter:

The finding of the Court in Goldberg… the answer to your question is yes, this case is different than the Goldberg situation.

The Court in that case made a finding based on the facts that there was an administrative impossibility of apportionment.

Here, by contrast, and we cite the Central–

Sandra Day O’Connor:

Well, that strikes me as being insubstantial.

I don’t see why it’s any more difficult there than here.

I would think you have exactly the same thing.

Steven D. DeRuyter:

–There were parties to that case that argued that… that it was administratively feasible in Goldberg to apportion the tax between the States, but the Court found, as part of its decision, that it was administratively impossible.

Here we have the contrast where this Court in a number of situations has held that it is not only administratively possible but has approved judicially the apportionment on the basis of mileage.

In fact, in Complete Auto itself, the Court indicated that it was fairly apportioned because it only applied to transportation within the State of Mississippi.

Sandra Day O’Connor:

Well, how about Justice Stevens’ Super Bowl ticket purchase in Oklahoma?

Steven D. DeRuyter:

I believe that–

Sandra Day O’Connor:

How do you apportion that?

Steven D. DeRuyter:

–I believe that that should not be subject to the Oklahoma tax because, assuming that you find that the Super Bowl ticket is a service, a performance, then the place where the service is performed is the place that may… that has the jurisdiction to impose a tax.

That is what the… by the way, the State of Oklahoma supreme court in the Pioneer Telephone case has so held.

It has held that the place of delivery of possession is the place where goods may be taxed, but the place of performance is the place that can tax a service.

Interestingly, that case, plus the Tad Screen case which we cite in our brief, are never dealt with by the commission in their briefs or in its argument before this Court.

John Paul Stevens:

Well, don’t those cases suggest that maybe this tax should not have been imposed as a matter of State law, rather than as a matter of Federal constitutional law, if you’re relying on the Oklahoma supreme court opinion?

Steven D. DeRuyter:

We’re arguing both, Your Honor.

John Paul Stevens:

But don’t we have to assume… or maybe we don’t, I don’t know… that this tax is properly imposed as a matter of State law?

If it isn’t, we surely can save ourselves a lot of work.

Have you argued that it’s not imposed, that as a matter of State law the tax is not collectible?

Steven D. DeRuyter:

I don’t believe we have.

We’ve argued in our brief that the manner in which the State has applied the tax to Jefferson Bus Lines is inappropriate because they have argued that they can impose their tax on the sale of a ticket, the transaction or the payment, it’s not clear, rather than on the delivery of the service, which is the operating incidence, the object of the tax, and therefore we have argued that as applied, this is unconstitutional.

Ruth Bader Ginsburg:

Mr. DeRuyter, one argument that was made, I think by the tax commission, was that if they were able to tax the customer who is traveling on Oklahoma roads, set up tolls, maybe, along the road, so they taxed all of the miles within Oklahoma, that they’d probably net more than they are now, when they’re taxing only the person who purchased the ticket in Oklahoma.

Have you shown that that is not so, that in fact if they went on your theory of taxing people who travel the roads in Oklahoma, no matter where they begin, no matter where they end… the argument is that they State would collect even more if they did it that way.

Have you shown that that’s not so?

Steven D. DeRuyter:

No, we have not shown that.

That… that would be a different case.

It is not before the Court, and what they’re… I mean, what they’re suggesting is that by applying a use tax in combination with the sales tax only to all miles traveled within the State, they’re suggesting that they would… they would get equal or more tax than they’re getting here.

That argument, that averaging argument has not been sustained by this Court.

I think this spring in Associated Industries the argument was made that a use tax on average was fair, but this Court held that that kind of analysis was not appropriate, that you must look at the individual taxpayer, and that is where it is significant that the tax here is imposed upon the individual passenger, because to say on average, passengers are not discriminated against or unfairly apportioned does not solve he dilemma of the individual passenger.

Anthony M. Kennedy:

Under your theory, I take it all sales taxes on rent-a-cars have to be apportioned to the extent the rent-a-car’s being driven out of State?

Steven D. DeRuyter:

If the tax… the answer is yes, assuming the tax is imposed on the delivery of the rental itself as opposed to the situation in, I believe it was Itel where they… there was a lease of containers, but they said the tax was imposed on the delivery of possession.

Steven D. DeRuyter:

If the tax is like Itel, then the answer would be different, but if the tax is imposed on the lease, then you should have an apportionment.

Anthony M. Kennedy:

And the same if you hire an attorney in one State but all of the services really involve his or her traveling out of State to make a report and a recommendation, if there’s a State service tax that has to be apportioned?

Steven D. DeRuyter:

That is correct.

That is what I do with the State of South Dakota.

I allocate my bills to clients that I bill in South Dakota on the portion of the services that I do in Minnesota.

Anthony M. Kennedy:

How are you coming out on that with the State, pretty well?

[Laughter]

Steven D. DeRuyter:

But we are required–

Anthony M. Kennedy:

But you think constitutionally this is required?

Steven D. DeRuyter:

–Yes.

I look at Evco, Ingram-Richardson, decisions of this Court which dealt with services rendered wholly within one State, and the Court said the tax is properly imposed because all of the services were rendered within a single State.

The same thing in Complete Auto.

There just has not been the case that at least I’m aware of where you have services rendered across State lines as you have in this case.

Sandra Day O’Connor:

Well, except for the telephone calls in Goldberg.

Steven D. DeRuyter:

Goldberg, as I indicated, administratively impossible.

There the Court said that there were only two States that could impose the… that had the nexus to impose the tax, and they also said that to the extent there was a credit mechanism there could be no multiple taxation, and therefore in discussing the apportionment aspect of Complete Auto, the Court said that… that the… that the way the telephone calls were made were… the way people understood the use of the telephone was consistent with applying a tax on the user in the State.

Sandra Day O’Connor:

Well, if you say the taxable event is the sale of the ticket, only one State can impose it, isn’t that so?

You don’t get the problem of multiple taxation if the taxable event is the sale.

Steven D. DeRuyter:

I believe that you do, that by saying that you impose a tax on the sale of the ticket, at bottom what you are saying is that you are imposing a tax on the contract, making of the contract and the making of the payment.

In this case, we happen to have a coincidence of the making of the contract and the making of the payment in the State of Oklahoma, but it would be quite simple… I mean, obvious in a different situation.

I think Justice Breyer has given us an example–

Sandra Day O’Connor:

But in this situation, what other State could tax the sale, do you suppose?

If the purchase is made in Oklahoma, and the payment of the ticket is made in Oklahoma, what other State can tax the sale, in your view?

Steven D. DeRuyter:

–No other view can tax the act of making the sale.

Sandra Day O’Connor:

Right.

Steven D. DeRuyter:

However, I’m… the… this Court has said you must look at the operating incidence of the tax.

The operating incidence of this tax is on the measure of the tax, and the measure of the tax is the gross receipts from the total trip, and therefore our argument is that the… the argument of the State of Oklahoma is too narrow, that you can’t look only at the actual transaction, but you must look at the operating incidence of the tax, and that is clearly on the total gross receipts, which is not apportioned.

Anthony M. Kennedy:

And your apportionment formula that you suggest is mileage traveled in each State?

Steven D. DeRuyter:

The determination of an apportionment formula is in essence a legislative decision.

There is in this case… to answer the Goldberg situation, there is in this factual situation an administratively feasible method of apportionment which is judicially sanctioned, and that’s what we’re saying.

Anthony M. Kennedy:

Which is mileage?

Steven D. DeRuyter:

Which is mileage.

Anthony M. Kennedy:

Well, suppose that a person transfers.

He takes the bus from Oklahoma to St. Louis, and then has to transfer and spends a lot of time in St. Louis.

It would be like an airline hub, changing to a different bus to go on, say, I don’t know, to New Orleans.

Couldn’t Missouri argue, well, it’s not just miles, because there was a hub here, and there was a bus change so we get more of the tax, it’s not just mileage?

It seems to me that mileage might not be administratively feasible or necessarily fair.

Steven D. DeRuyter:

I agree in a theoretical sense that that is a legislative decision.

We’re not asking the Court–

Anthony M. Kennedy:

But it’s not just a legislative decision if we’re asking whether or not the apportionment mechanism is available and feasible, because that’s what we need to distinguish the Illinois tax on telephone calls.

Steven D. DeRuyter:

–I certainly believe that apportionment on the basis of mileage is not only feasible but judicially sanctioned, and it was referenced as such in the Illinois decision, citing Central Greyhound v. Mealey.

Ruth Bader Ginsburg:

Mr. DeRuyter, would you explain why it isn’t necessary for New York in the Berwind-White situation to take off something because the coal traveled interstate?

New York can tax the full value of the sale… although it started some place else and value was added all along the way it’s the place where it ends up can tax the full value.

Why can’t, equally with regard to services, the place where it starts out tax the full value?

Why such a difference between the treatment of goods on the one hand, where we let the State tax it all at the end, and here, a similar thing that the State can lay its hands on, the sale of the ticket, can also tax the whole thing?

Why should we treat those differently?

Steven D. DeRuyter:

We argue that our position is consistent.

In the McGoldrick Berwind-White case, the State is allowed to impose a tax on the full sale price of the delivery of possession of the good.

That is the entire object of the transaction.

What we are arguing is that applying that same rule to the delivery of services, that the State is entitled to impose a tax on the object of the transaction, which is the delivery of the services where those services occur, and only the portion of those services that occur in the taxing State can that State tax.

Ruth Bader Ginsburg:

Are you saying that unlike goods, where we let somebody tax the full value, nobody in an interstate sale can tax the full value of the service?

Steven D. DeRuyter:

No.

What I am saying is that the combination of States in which the service is performed in total can tax 100 percent of the value of the service.

Ruth Bader Ginsburg:

I don’t follow that.

Tell me who can tax the full value of a bus trip from Oklahoma to Texas.

Steven D. DeRuyter:

Assuming… Oklahoma and Texas in combination can tax 100 percent of the value of that–

Ruth Bader Ginsburg:

But New York didn’t have to worry about combining with anybody in Berwind-White.

It could tax the full value of the sale.

I’m asking you, and I think you answered that services, yes, one place could tax the full value of the service too, but you have answered the concrete example differently.

You said two places could, but not one place.

Steven D. DeRuyter:

–I go back to what this Court has said in those delivery of goods cases, that the object of the transaction is the delivery of the good.

Ruth Bader Ginsburg:

So you’re then making a distinction between, there isn’t one place that can tax in full a service that’s rendered interstate, unlike goods.

Steven D. DeRuyter:

I agree with that.

David H. Souter:

Why isn’t the object of the transaction in this particular case the right to obtain travel services at some future time, and why isn’t that transaction just as complete as the transaction when goods are purchased?

Steven D. DeRuyter:

Because when a person purchases a ticket, they don’t have the full right to the object of that transaction.

David H. Souter:

But they do.

They’ve got the ticket, and if the bus company won’t carry them, they can sue the bus company for damages.

I mean, economically, it seems to me, they’ve got the full value of the transaction, and they’re going to realize that value either by traveling or by making the bus company pay.

The distinction, I suppose is, when they buy the coal, the people along the line responsible for getting the coal there no longer have to do anything, whereas in this case people along the line in the future do have to do something.

Either they’ve got to carry them on the bus, or they’ve got to pay up in some way, but the fact is the right to the service is what he’s buying, and I would suppose that right is complete once he pays the money.

Steven D. DeRuyter:

I don’t agree with that.

I believe that the delivery of the good cases essentially say that when a purchaser of goods has complete dominion and control on those goods, the transaction is complete, whereas in the purchase of a service, the dominion and control of the object of that transaction can never be complete until the passenger completes their travel, and if that is interrupted in the middle, they have a right to a refund of the portion of the sales tax, on the portion of the trip they didn’t complete.

David H. Souter:

Would you agree, then, that if the bus company were selling the tickets in the first place to travel agents and travel agents were then selling them to the travelers, that at least the transaction as between the bus company and the travel agent would be complete at that point, and that would be fully taxable?

Steven D. DeRuyter:

I don’t believe that’s the case.

David H. Souter:

Well, that isn’t the case here, but if that were the case, would that particular transaction as between the company and the agent, as distinct from the agent and the traveler, even on your theory, be fully taxable without apportionment?

Steven D. DeRuyter:

I don’t think so, because the travel agent is simply an agent in that situation, either for the passenger or for Jefferson Lines, and it should not make a difference on how the transaction is taxed.

The object of the transaction, the object of the tax and the tax is not laid on the travel agency but rather it’s laid on the passenger, the user of the service, so I think the answer is that it passes through the travel agency.

Anthony M. Kennedy:

This may not be a very legally persuasive argument, but it seems to me that if Oklahoma were right in this case, many, many States would have enacted sales taxes where none now exist on transportation tickets.

Do you agree with that?

I mean… let me put it this way.

I take it this is a unique tax, or am I incorrect?

Do many States tax the sale of airline tickets for interstate travel, for instance?

Steven D. DeRuyter:

I think airline tickets are… Congress has acted in that area, but–

Ruth Bader Ginsburg:

The antihead tax, right?

I mean, that you can’t have a head tax.

Steven D. DeRuyter:

–Right.

Right.

Ruth Bader Ginsburg:

But what about other bus companies?

Is Oklahoma peculiar in taxing bus tickets, or do other States do it, too?

Steven D. DeRuyter:

Jefferson operates on routes that basically go north and south from the State of Minnesota.

Steven D. DeRuyter:

The only State that we’re aware of in that system that imposes a tax on bus transportation is the State of Missouri, which imposes a tax applicable only on intrastate tickets.

In other words, they only impose their tax on a ticket purchased for travel beginning and ending within the State of Missouri, never touching another State.

Other than that, there may be two or three other States throughout the country that seek to impose a tax on bus transportation.

Stephen G. Breyer:

I’m not sure I understand the state of the art on this, but if the… or, I start out in Washington, the State of Washington, and I buy a bus ticket and a crate of apples, and I’m going to New York, and I take it if I eat up the apples on the way, all New York can tax is the two remaining ones that are with me in New York.

Is that the state of the law on goods?

I bought the whole thing, by the way, in New York.

But is that the state of the law on goods?

Steven D. DeRuyter:

Yes.

Stephen G. Breyer:

Yes.

Okay.

Steven D. DeRuyter:

Yes, if they were all delivered to New York.

Stephen G. Breyer:

Then I take it on services… if that’s the state of the law on goods, then I take it on services it would be the same, that New York could tax me on that portion of the bus trip that takes place in New York, but it couldn’t tax me on the portion in Iowa any more than… on your theory any more than it could tax me on the apples that I ate as I was going through Iowa.

Steven D. DeRuyter:

Exactly.

Stephen G. Breyer:

All right.

But then what do you do about the case of the telephone system, because with the telephones I can understand that I’m in Illinois, and I phone my brother in New York, and I can easily imagine I got the service of talking to my brother when I was in Illinois.

It’s as if he’s sort of curled up inside the receiver.

[Laughter]

There’s a voice there, and I hear it, and so forth.

But also the same thing is happening in New York, so why couldn’t you say, well, look, at least New York and Illinois could tax this.

So how do we reconcile that case with what our theory was on the bus with the apples?

That’s where I’m having… I mean, we’ve got… I’ve got it all worked out, almost but not quite.

That’s–

Steven D. DeRuyter:

I can’t answer your question without reference to the Goldberg decision.

There, they only imposed the tax on calls charged to a service address in Illinois, so there would not be a tax on a call that was charged to a service address in New York.

That’s the first part of that answer.

Secondly, they found as a matter of fact that it was administratively impossible to allocate… you know, where the service was performed.

If… and I submit, if another case came up, technology has changed that they can allocate that telephone service, then I would argue that telephone case would be similar to the case we have before the Court today.

David H. Souter:

–Why couldn’t they simply have said, we allocate it 50-50, one person is curled up inside the telephone in Illinois, another one is curled up in New York, we split it right in half, and each State could–

Steven D. DeRuyter:

I think–

Antonin Scalia:

–What about the States in between?

Antonin Scalia:

There’s nobody curled up anywhere.

[Laughter]

Steven D. DeRuyter:

–Are we talking buses now or telephones?

Antonin Scalia:

Telephones.

Steven D. DeRuyter:

If we’re talking telephones, the… that’s similar to a tax that we cite in our materials, the case out of Florida, and that’s exactly what they did, and that might be an appropriate apportionment.

What this Court held in Goldberg was that the State of Illinois could impose a tax on 100 percent of the fees charged to a service address in Illinois.

David H. Souter:

And spoke of the problem of, the difficulty of attribution.

Steven D. DeRuyter:

Exactly.

David H. Souter:

Yes, and it doesn’t seem to be a difficult… I mean, it looks as though there’s a very simple way that they might apportion, and so the question is, do we follow… do we say, well, if it was tough in the phone case, it’s equally tough in this case, and say there can’t be an apportionment, or do we say we were wrong about apportionment in the first case, it’s easy in each instance, and therefore we see it your way here?

Which way do we go?

Steven D. DeRuyter:

I’ve thought about… I thought about… you know, when I’ve read Goldberg, my view of that is simply that I don’t think the State of Oklahoma argues that apportionment on a mileage basis is difficult, or impossible to do.

They simply argue it’s not relevant in this case.

As opposed to the telephone situation, as I indicated before, if the facts were different in Goldberg I think the result might have been different in Goldberg, and if you have the technology to allocate to States where there’s a real nexus to tax in Goldberg, I think you might have a different… my view of it, there would be a different result.

Ruth Bader Ginsburg:

You haven’t shown that there’s any multiple taxation in fact in this case.

In other words, the transportation, say, from Oklahoma to Texas, Texas is not laying a tax on that customer so that the ticket is being taxed twice.

Steven D. DeRuyter:

You are correct.

We have not shown actual multiple taxation.

We suggest that there’s a high possibility, particularly once the States read the decision in this case, for other States to impose use taxes or sales taxes with the same language that we have in this case.

In other words, the tax here is on the rendering and furnishing of services.

They could impose that or a gross receipts tax where a credit mechanism, for example, would not–

John Paul Stevens:

As long as the tax is imposed on a customer, how could they impose… how could another State, other than the one where the ticket is bought, impose a tax?

Charge it on the bus?

I mean–

Steven D. DeRuyter:

–How could another State impose a tax on the customer?

John Paul Stevens:

–On the passenger.

Steven D. DeRuyter:

On the passenger.

A use tax, for example.

John Paul Stevens:

How would that work?

You get on the bus in Oklahoma City to get off in Minneapolis.

You buy your ticket, you pay the sales tax.

John Paul Stevens:

How would Minneapolis collect a use tax?

Steven D. DeRuyter:

Minnesota would simply audit the tickets purchased outside the State and ask for an allocation on the… assuming mileage–

John Paul Stevens:

On the passenger, by–

Steven D. DeRuyter:

–Impose it on the passenger, require that the bus company collect the tax.

That’s typical use tax.

John Paul Stevens:

–When they get off the bus.

I see.

Steven D. DeRuyter:

Not when they get off the bus.

The passenger would have it… would have it collected by Jefferson, you know, when he bought the ticket in Oklahoma.

William H. Rehnquist:

But the taxable event in Minneapolis is alighting from the bus?

Steven D. DeRuyter:

No.

The taxable event in Minnesota is the travel which commences at the Iowa border and concludes at the terminal wherever they get off.

William H. Rehnquist:

So you wouldn’t be taxing the full value of the ticket in Minnesota, you would just be taxing an aliquot share based on mileage?

Steven D. DeRuyter:

That’s what I would suggest.

However, if Minnesota adopted a sales tax statute identical to the tax statute before the Court, I believe that there’s no apportionment.

They could impose a tax on the full value.

William H. Rehnquist:

Thank you, Mr. DeRuyter.

The case is submitted.