United Gas Pipe Line Company v. Ideal Cement Company

PETITIONER:United Gas Pipe Line Company
RESPONDENT:Ideal Cement Company
LOCATION:Florida General Assembly

DOCKET NO.: 61
DECIDED BY: Warren Court (1958-1962)
LOWER COURT: United States Court of Appeals for the Fifth Circuit

CITATION: 369 US 134 (1962)
ARGUED: Dec 13, 1961
DECIDED: Mar 19, 1962

Facts of the case

Question

Audio Transcription for Oral Argument – December 13, 1961 in United Gas Pipe Line Company v. Ideal Cement Company

Earl Warren:

Number 61, United Gas Pipeline Company, Appellant, versus Ideal Cement Company.

Mr. Beggs, you may proceed with your argument.

E. Dixie Beggs:

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

This appeal presents a question of whether the Commerce Clause of the Federal Constitution denies a municipality the right to tax the direct sale of natural gas to industrial consumers within the city.

The seller being, an interstate pipeline company, but the seller itself making the deliveries direct to the plant of the purchaser and admittedly the situs of the sale lying within the city levying the tax.

The appellate, United Gas Pipeline Company occupies here the unique position of a taxpayer arguing for the validity of a tax levied upon it rather than against the validity of the tax.

That situation is brought about by the fact that United Gas paid the City of Mobile, the taxes for the three years in question and then sued two of its industrial customers to whom these direct deliveries are made for their contractual reimbursement.

Under theF contract, customers were obligated to reimburse to United in his subsequent levied sales, occupation, privilege or the types of taxes and this tax was subsequently levied and the liability of the appellees to United Gas is admitted save only on the question of the validity of the tax.

The case was litigated in the District Court solely on the question of whether the Commerce Clause was infringed upon by the levy of this direct tax.

The District Court held that the delivery to the — directly to the consumer on the sale completed within the City of Mobile was separable from commerce and sustained the tax.

The Court of Appeals took the view that the tax on the privilege of selling within the City of Mobile was the equivalent of a tax on the preceding interstate transportation and struck the tax down as an improper burden upon interstate commerce.

Felix Frankfurter:

Equivalent or part of which?

E. Dixie Beggs:

I suppose, Your Honor, a part of the inseparable from commerce.

There is distributed to the Justices and served on opposing counsel, a reproduction in miniature of a map which was a part of the record in the case below, the original, which was transmitted to this Court, and the local picture might best be obtained by an examination of that map.

The map shows in green —

Felix Frankfurter:

(Voice Overlap) would you just (Inaudible) for a minute.

E. Dixie Beggs:

Yes sir.

Felix Frankfurter:

(Inaudible)

E. Dixie Beggs:

The names of the industry — yes, sir.

The names of the industry should be on the right.

Mobile Bay will be on your right and Pennsylvania in the lower left hand corner.

The green lines in the upper left hand corner of the map show the transmission lines by which the gas is brought into the State.

There are three connections with orange colored lines marked, TB Stations which means Town Border Stations or Town Boundary Stations.

The orange lines are the lines of Mobile Gas Service Corporation, the local distributor which has no connection with United Gas except that it purchases its gas at wholesale from United.

The Line Industries that — or direct customers of United are labeled on the right hand margin of the map.

At the time of this litigation, seven of those industries were within the City of Mobile or its police jurisdiction.

The two northern most industries were outside of that jurisdiction and therefore not involved in this case.

Hugo L. Black:

That in the ninth replacement?

E. Dixie Beggs:

Alabama Power and International Paper were the two — were already involved at that time Your Honor.

Now, the history of the direct sales is this.

E. Dixie Beggs:

Prior to 1954, these industries purchased their gas requirements from the local distributor, Mobile Gas Service Corporation.

Because of the rate problems, rates — those rates being subject to administration by the Federal Power Commission in order to assure a more stable price, the industries negotiated with United Gas for direct purchases.

Under the National Gas Act, sales for resale, that is sales to the local distributor was subject to the Federal Power whereas direct sales to the ultimate consumer are not so subject.

And so in 1954, all seven of these industrial contracts were assigned by the local distributor, Mobile Gas Service Corporation to United Gas Pipeline Company.

United Gas immediately contracted with the local distributor to continue to make the distribution through their local distribution system, to read the meters, to do the accounting, to send the bills and to collect for the gas.

John M. Harlan II:

Did Mobile — was Mobile taxed in that earlier period under the same statute?

E. Dixie Beggs:

No sir.

They’re taxed under the statute now on the local consumers, Mobile Gas Service Corporation distributes to all of the commercial and industrial consumers in the city.

And they pay this 3% tax on 40,000 to 50,000 consumers of theirs.

Under the Natural Gas Act and under the decisions of this Court, United Gas pays no tax on its sales for resale to the local distributor but the local distributor has paid the tax.

If the Court of Appeals’ decision is upheld, United Gas will be in the position of being able to make direct sales to consumers, free of any tax.

The absurdity we submit, as we conceive of that the position is that if that’s true as to seven industries, why not ten, why not 2, why not all 50,000 customers within the city of Mobile?

They’d like all be assigned from the indirect purchase to the local distributor over to direct purchases from United Gas Pipeline Company and escape entirely the 3% of sales tax if it be that the sale and the distribution within the City of Mobile to the direct consumer is to be exempted from the tax.

Your Honors would observe that from this — following this paper transfer in 1954, the local customers who would — the industrial consumers whose purchases from the local distributor would have unquestionably been subject to the tax, but who would like to escape the tax since they buy from United Direct rather from — rather from the local distributor.

Your Honors would observe that they still get their gas through the same pipes.

It’s read through the same meters.

It’s service by the same crews.

The accounting is kept right in the same office in Mobile.

The bills go out from the Mobile office.

The checks in payment go back to the Mobile office and then back to the Mobile bank.

So the whole transaction is consummated within the city.

There’s no dispute and it is conceded that the size of the sale is within the City of Mobile.

Felix Frankfurter:

Was the — the local taxation by the local — prior local distributor contested in the Court Mr. Beggs?

E. Dixie Beggs:

I’m not sure I understand Your Honor’s question.

But — prior to the 1954 transfer of this tax, as I’ve already said, it was not even authorized at that time.

This tax was levied from the first time in 1956.

The local distributor has not contested and he pays it and of course either directly or indirectly, passes it on to his customers, and United Gas paid it for the three years in question and two of the industries denied the obligation to reimburse.

Not because the contract doesn’t require it, if it is a valid tax, they defend it solely on the validity of the tax.

We should point out that the only tax reach that the City of Mobile undertakes to make against United and that United disputes, is on these sales direct to the consumer.

United transports into the City of Mobile vast quantities of gas, free of this tax because it is sold at wholesale for resale by the local distributor and under the Natural Gas Act and the decisions of this Court, the sale for resale is that — that interstate commerce but the sale of the direct consumer is not.

E. Dixie Beggs:

Likewise, United transports through the City of Mobile’s police jurisdiction free of any tax, vast quantities of gas destined for the Pepsi Cola and northwest Florida area.

Felix Frankfurter:

Was there — was there any change in any aspect of the physical transactions in the change of direct sale now by Union Gas against —

E. Dixie Beggs:

United Gas, no sir, no physical change at all, but there’s only a paper change.

It did give a greatest stability to prices and that — but the physical change — is exactly the same meters, the same crews, the same office, the same pipes, the same procedure.

Felix Frankfurter:

The same continuity of passage of the gas.

E. Dixie Beggs:

Exactly and the same source all gas for the Mobile area comes from the United Gas Pipeline Company.

No — no physical change or whatever.

William J. Brennan, Jr.:

(Inaudible)

E. Dixie Beggs:

So far is that —

William J. Brennan, Jr.:

(Inaudible)

E. Dixie Beggs:

Well, I don’t need mean to — suggest that it’s not a perfectly legitimate change but as far —

William J. Brennan, Jr.:

(Inaudible)

E. Dixie Beggs:

They contracted with United and said, “We’ll do the same servicing as your agent, we formerly did when we’re going to sell it.”

William J. Brennan, Jr.:

(Inaudible)

E. Dixie Beggs:

Yes, sir.

The Supreme Court — what it stated is this that during the time of this litigation, the sales price from United to these industries was $0.23 per thousand cubic feet.

Their agreement with Mobile Gas was to pay them $0.02 per thousand cubic feet for doing the local distributing and reading the meters and keeping the accounts and collecting the bills.

In actual practice, the $0.23 is paid to the Mobile Gas office in Mobile as the agent of United in trust account.

Felix Frankfurter:

What was prior — prior to this, just for you to make an arrangement, what was the inter-corporate relation, if any, between Mobile and United, I’m not (Voice Overlap)

E. Dixie Beggs:

None, whatsoever, Your Honor.

Felix Frankfurter:

What?

E. Dixie Beggs:

None whatsoever.

Felix Frankfurter:

None.

E. Dixie Beggs:

None at all.

It never has been.

It’s — it’s simple a local distributor who purchase a gas requirements in wholesale.

Charles E. Whittaker:

Mr. Beggs, at that time, was there some point to which you can slip in where the interstate commerce ended and intrastate commerce began as respect to the gas distributed in Mobile?

E. Dixie Beggs:

Your Honor, the tax here levied is not on the gas or movement of the gas, but it is on the local privilege of selling.

Now, the sale itself is a transaction consummated within the city.

This Court has held in a number of cases that the sale and distribution direct to the local consumer is a local interest, separable from commerce and the burden if any that holds on commerce is inconsequential, the local interested being paramount.

E. Dixie Beggs:

The Court has held in three cases that the section for sale to subject to state taxation because it is the local activity of selling.

It’s comparable to your holdings and general commodity cases where you have held that the state in which the sale is consummated may levy a gross receipts tax on that sale.

Felix Frankfurter:

In all those — in those cases on which — which — on which you rely, were those cases where there were ownership of the commodity sold, the physical transfer from out-of-state directly through the out-of-state seller into the hands of local the buyer?

E. Dixie Beggs:

Yes sir the transfer of possession was the answer in support in the tax.

For example in McGoldrick versus —

Felix Frankfurter:

I understand — I know that case, but what — that was not a case where the whole transaction from the beginning of the commercial transactions to the end was in the control of, in the direction of, in the ownership of the interstate business enterprise.

E. Dixie Beggs:

I was under the impression that until —

Felix Frankfurter:

There was — there was break in — in McGoldrick and Berwind-White.

Now, there is a physical break here in the sense that the local — that it go — that the sale to the ultimate consumer is the local transaction.

But the transmission of the gas from out of the state finally to the hands of the homeowner in Mobile is all unbrokenly.

I’m not saying this is — I’m pursuing this.

I’m fully aware of the difficulty of the subject, but the fact that the incident of the sale is local doesn’t put an end to the question, it doesn’t answer it, does it?

E. Dixie Beggs:

It depends on what the tax — taxable entities Your Honor and may I read from the ordinance, “Each person –” this is page 84 of the record and I think the Court of Appeals misconstrued the tax ordinance and — and felt that it was a tax on the privilege of delivery that thing and speaks always of delivering.

They never get around to the privilege of selling.

Now, the burden of the tax is, “That each person, firm or corporation engaged in the business of selling or distributing natural gas, in an amount of 3% of the gross receipts from the business transacted by such client in the City of Mobile” for the preceding year of such natural gas sold or distributed from point or points in the City of Mobile.

Now, the Court has held that where the gas is purchased as it is consumed and it is — that it’s purchased at the burner tips, the sale takes place at the burner tips.

Felix Frankfurter:

Well I know but the fact that the sale takes place there doesn’t answer the Commerce Clause question?

E. Dixie Beggs:

If the tax Your Honor —

Felix Frankfurter:

It may answer.

I’m not (Voice Overlap) the fact that you can say localizing of sale of a continuous transaction from Texas Oil Fields to Alabama doesn’t mean that because the incident can be broken up as phenomenon local to Mobile, but that’s an end of the question.

E. Dixie Beggs:

Well, if time permits, I would like to discuss some of the brief — some of the cases that are in the brief where I believe just that has been held that the state where the transaction comes to fruition is conferred the benefits and he’s entitled to tax whether it’d be a gross receipts tax or other form of tax.

Let me point out here that none of the usual grounds upon which a — an alleged tax on interstate commerce is — may sometimes be stricken down exist.

There’s no claim here that the tax discriminates against interstate commerce.

The same tax applies to the local distributor and it is paid without question.

The Court of Appeals upheld it with respect to the two sets part of the purchase price that the local distributor retains on second re-hearing.

Just how to — to justify taxing $0.02 out of the $0.23 when it’s all part and posture between transactions, we’ve been on unable to find.

But with those who do all of their purchasing from the local distributor, the — the — the tax is paid and all passed on to all consumers so we have here seven consumers who were excluded from the tax under the decision of the Court of Appeals.

The result of the Court of Appeals’ decision is discrimination in reverse.

It says that any interstate seller who brings his commodity in interstate but himself makes a delivery and collects the purchase price right within the city shall be immune from the tax.

I say the — the all 50,000 or so of the local consu — local consumers of gas could just well be transferred over the United Gas and skip this tax entirely.

E. Dixie Beggs:

The rule is the same in Power cases as this Court has held, why not let the power companies make that same indirect escape with the tax.

I mean if it’s true for the City of Mobile, it would be true for municipalities and state taxes throughout the country.

Charles E. Whittaker:

Mr. Beggs, (Inaudible), would you contend that this transportation by United Gas was interstate in character, all the away to Ideal Burners?

E. Dixie Beggs:

Your Honor I think so.

You will characterize the interstate sale of — of gas direct to the consumer as interstate and I think as long as the transportation is in progress, it is interstate movement.

Charles E. Whittaker:

That’s what I want to know.

Do you contend that it was interstate commerce all the way that there never was a time when this particular gas (Inaudible) ceased to be in interstate commerce and became local —

E. Dixie Beggs:

I agree with that.

Charles E. Whittaker:

Do you?

E. Dixie Beggs:

I agree that it was — its movement was interstate.

Charles E. Whittaker:

Well, that’s what Judge Rives held, wasn’t it?

E. Dixie Beggs:

He held it that — that the tax was on the movement Your Honor.

He never reached —

Charles E. Whittaker:

(Inaudible)

E. Dixie Beggs:

The movement, but Your Honor it’s the movement that is taxed.

It’s the sale that is taxed.

Charles E. Whittaker:

Do you agree it was all interstate commerce —

E. Dixie Beggs:

The movement Your Honor, yes, sir.

Charles E. Whittaker:

— movement?

E. Dixie Beggs:

I agree that the movement was but I agree if that is not the event that was taxed.

Charles E. Whittaker:

Well then, how can it tax, the privilege or that the city tax privilege of doing interstate business?

E. Dixie Beggs:

They taxed the privilege of making a local sale Your Honor.

The umbrella that the Commerce Clause throws over the interstate transportation should not extend to the things that are done with the commerce after it arrives.

For example, in the McGoldrick versus Berwind-White, their coal was barged interstate from the mines in the outside state directly to the plant site.

The Court upheld a sales tax.

Charles E. Whittaker:

Yes, but why?

E. Dixie Beggs:

Because the Court said that the delivery of possession to the consumer was at its plant site which was is in New York City.

Charles E. Whittaker:

And the interstate carried from the commerce had ended at the plant site, hasn’t it, where local commerce began?

That’s how (Voice Overlap)

E. Dixie Beggs:

But there was no further transportation, Your Honor.

E. Dixie Beggs:

The local commerce, the sale began but — but we’ve forgot to make the distinction between transportation and commerce.

I agree that transportation as long as it was flowing was commerce, but when it comes to the local sale and consumption, the transportation is ended and the local event has taken place.

In the Indiana cases that came, the Court pointed out that true McGoldrick involved the sales tax but the same tax on the seller applies and the tax was upheld in the National Harvester case on two types of sales.

One, where the purchaser came in and says — from out of state and says, “I want to buy this tractor and take it to Florida.”

Admittedly it is commerce, but he made the sale and ended commerce, second, where the tractor was shipped into the state and delivered in to the purchaser at the end of its journey, the delivery of possession.

Now we have a transfer delivery of possession when it passes through our meter to their burner and it’s consumed.

Felix Frankfurter:

Mr. Beggs may I suggest if you’ll permit me, that I think you have to make — mean the last sentence in per curiam opinion on rehearing on page 128, I say that was written by Judge Rives, but last sentence I think summarizes the conflict and controversy in this case.

E. Dixie Beggs:

Yes sir and it points the — what we conceive to be the error of the Court of Appeals.

Hugo L. Black:

What page?

E. Dixie Beggs:

That’s on page 128 sir.

The Court of Appeals throughout treated the tax as a tax on delivery.

It expressly disavows that it is a tax on sales.

It says that the city would have the right to tax sales, but it didn’t choose to tax sales.

It choose to tax deliveries according to Court of Appeals, but the clear reading of the ordinance, discloses that all it did tax is a sale.

Felix Frankfurter:

We held that the taxes on the act of privilege of delivering the gas in the City of Mobile that — this on the page 5.

E. Dixie Beggs:

Yes sir.

Felix Frankfurter:

This is the incidence of the tax or incident, I take it means that was the tax goes on —

E. Dixie Beggs:

Yes.

And if that be true Your Honor, our case fails, but it isn’t what the ordinance levies the tax on.

The tax is levied on the sale, the privilege of making the sale and it was the inability of the Court of Appeals to catch that distinction which is well summarized in the opinion of the District Court that caused the reversal.

Charles E. Whittaker:

What I can’t understand I think Mr. Beggs on this is the power of Mobile to levy even a sales tax under the privilege of commerce.

E. Dixie Beggs:

I agree Your Honor they do not have the right to levied on the privilege of commerce, but the commerce umbrella does not give to the out-of-state seller, the right to come within the city and complete a local sale.

You see, there’s no segregation of this gas at any point until it is full by fortuitous circumstance for this particular plant.

Mrs. Jones could just well pull it to fry her husband eggs that morning fur — further up the line.

It’s a non-segregated commodity until it is purchased for the commodity that United Gas has within the city.

And the —

Hugo L. Black:

The difference between this I gather and in sale a coal, is that the coal is a tangible thing, if it were to come there and the company held it in its place and some local broker acted as salesman, you would say that the city could collect the tax for the sale of the coal and as I gather, you’re arguing the same thing about this gas?

E. Dixie Beggs:

The dis — difference of the physical property is ought not to produce a different result and has not in this Court.

In three different cases, the Court has held that fact of the local sale by the Interstate Pipeline Company, the one who brought it in is sufficient support to tax and in the other cases —

Felix Frankfurter:

But — that is not the case as I understood that Justice Black gave you.

Felix Frankfurter:

He said and the local dealers and so —

E. Dixie Beggs:

Oh sir, a local.

Felix Frankfurter:

About this case?

E. Dixie Beggs:

No sir, no.

It’s — it’s the interstate shipper who brought it in and sold it just as in the other cases.

Felix Frankfurter:

(Voice Overlap)

E. Dixie Beggs:

I would like if I may to reserve my remaining time for rebuttal.

Hugo L. Black:

What is the local dealer knew?

E. Dixie Beggs:

He sells to his — all the other customers in the city except these seven.

We took over these seven and sell them in direct and if that device permits us to escape attack, we might take over the rest of the customers.

Hugo L. Black:

To be convenient (Voice Overlap).

Felix Frankfurter:

There might be business reasons why you can’t do it.

E. Dixie Beggs:

That’s true.

Felix Frankfurter:

— in the domain of taxation, in the domain of commerce, business arrangements are made which may carry undesirable consequences and you can hypothetically say you wouldn’t — you wouldn’t encounter all hypothetically (Voice Overlap).

That’s quite true, isn’t it?

E. Dixie Beggs:

Yes sir.

Earl Warren:

Mr. Rhyne.

Charles S. Rhyne:

Mr. Chief Justice, may it please the Court.

The interest to the City of Mobile here is that about one-third of their tax revenues is involved in this gross receipts tax and of course at this as Mr. Beggs has said applies to Natural Gas.

Mr. Justice Frankfurter, it would be very easy for to the local people or United to just print a form contract and turn over all the costumers to the pipeline and call them all direct sales and escape the tax completely and the same thing could be done in the field of electricity.

So this is —

Felix Frankfurter:

Maybe it wouldn’t — maybe it wouldn’t Mr. Rhyne.

You can’t hypothesize these states.

Business affairs aren’t just conducted to respond to legal conflict.

Charles S. Rhyne:

Well, that —

Felix Frankfurter:

It’s sometimes are, it’s sometimes can’t be.

Charles S. Rhyne:

It would be an identical situation because this gas comes to city gate and it’s commingled with all the other gas and until — and it goes trough the same lines as all the other domestic gas handled by mo — Mobile Gas service, it reduces the pressure and all of that kind of thing and so some of the gas goes into this plant and some other goes to Joe Dox next door.

Felix Frankfurter:

But — but then it’d be all of the difference in the world between dealing with six big commercial consumers and dealing with thousands local consumers?

Charles S. Rhyne:

I — I’d like —

Felix Frankfurter:

All the difference in the world?

Charles S. Rhyne:

I grant you just a matter of convenience only because they could have a contract with Joe Dox who uses this — a tiny little bit of gas as much as they can have a contract with that — tremendous use or such as involved here.

Now, I would like in this case to direct the Court’s attention to the fact that this isn’t a licensing ordinance in the conventional or regulatory sense.

This —

It —

Charles S. Rhyne:

Pardon?

(Inaudible)

Charles S. Rhyne:

Yeah, it’s not.

I thought it’s not.

It’s not a regulatory ordinance in the conventional or creational sense.

There are no preconditions to the engaging in the Natural Gas business under this ordinance at least in the City of Mobile.

The taxes imposed on the business of selling, the business of selling gas.

There is no minimum requirement.

The tax is paid on March 1, a year after they begin selling.

It’s — it’s measured by the preceding year’s business.

There, the court below got very concerned about the fact that in the Alabama Code, there is an injunction which they claim might be used to stop the flow of — of interstate commerce.

There’s no injunction in this ordinance at all.

I express, there’s no discretion to refuse a license.

I think that the court below was confused by labels rather that the practical effect of this particular tax.

Now, this type of tax has been upheld by this — this Court at least in my view in — in two cases, Southern Natural Gas Company versus Alabama in 301 U.S. where it was a franchise tax as I grant you, but it was tax imposed on the sales within the State of Alabama by direct seller, the pipeline or a direct sale.

The same thing in Interstate Oil Pipeline Company versus Stone, 337 U.S. and in Memphis Natural Gas Company versus Beeler where there was a 3% tax on net income from sales of natural gas by a pipeline company to a direct user.

Now, there’s no difference really here between the gross receipts or privilege tax and the taxes that were imposed there because there is no regulation, there is no burden on interstate commerce whatever.

The — the interstate seller is treated identically with the intrastate seller and to give interstate commerce this tremendous competitive advantage over a local commerce is something that this Court has always guarded against and it has emphasized that it merely struck down taxes that give a competitive advantage to the local intrastate rather than interstate seller.

So —

Felix Frankfurter:

I — I don’t think that’s quite true Mr. Rhyne.

If in fact it is a tax on commerce then the fact that interstate commerce enjoy — enjoy the immunity from state taxation which the local competitor does not makes no difference because the discrimination then is against interstate commerce as such.

And in that connection, I wish you to address yourself in good time to the use that Judge Rives made of Section 19 of the ordinance, on page 113 and 114 and he concludes thus United must pay a tax each year before it can supply gas to Scout and Ideal within the City of Mobile.

Charles S. Rhyne:

Well, he — he is wrong when he says they must pay a tax as a precondition to doing business, but —

Felix Frankfurter:

Well he quotes that — the difficulty I have with this case is the conflict as what this ordinance —

Charles S. Rhyne:

Yes.

Felix Frankfurter:

— says and does.

Charles S. Rhyne:

Yes.

Now he —

Felix Frankfurter:

He facts — he quotes Section 19 and italicizes that it cannot do this without having first obtained tax license.

Charles S. Rhyne:

Well, the plain fact of the matter is Mr. Justice Frankfurter that there is no requirement of having first obtained any license.

The only money is to be paid at the end of year, no money in the beginning.

Felix Frankfurter:

But is the Section 19 relevant at all?

Charles S. Rhyne:

Not to this particular gross receipts tax because I should call the Court’s attention to the fact that this particular ordinance encompasses a lot of things.

It encompasses a tax on gasoline for example, a room tax on hotel, many different things —

William J. Brennan, Jr.:

May I ask Mr. Rhyne?

Do we have much leeway here to deal with the — what the court below said that this ordinance means that —

Charles S. Rhyne:

Well —

William J. Brennan, Jr.:

— to the extent that this an interpretation of the ordinance —

Charles S. Rhyne:

Well I — I think —

William J. Brennan, Jr.:

How far may we go to —

Charles S. Rhyne:

Well — well I think you have the same language before you and it’s an interpretation of — of an ordinance and their — their interpretation is certainly not binding on this Court.

For example they —

William J. Brennan, Jr.:

Ordinarily, we give considerable respect to the interpretation of local law by the courts —

Felix Frankfurter:

If this came up from the state, we would be bound by it.

Charles S. Rhyne:

Yes, yes, but not — I think from the — the Circuit Court of Appeal.

For example, they say something about the gas entering.

This being imposed when the gas enters Mobile.

Well, the provision of the ordinance that refers to entering is a reference to the taxpayer entering.

And the taxpayer that already entered the city and had a tax paid just within the city before the tax was imposed that the — the taxpayer United entered the city in 1954 when these contracts were made, really to escape federal rate regulation.

So the taxpayer was already there.

Now, the mistake that the court below made I — I sincerely submit was it didn’t consider this little code as a whole and that the different parts of it.

Part of it I say is — is a gasoline tax, Part of it is a — a room tax and part of it is this gross receipts tax.

Now, —

Felix Frankfurter:

They are — they are troubling to me Mr. Rhyne in order to disclose you my trouble, along the line of Justice Brennan’s question.

Here is a consideration of what this ordinance mean or what the incidence of the tax is and apparently this case was argued in April — on April 20th, 1960 and then there was — it was considered by the three judges.

It then held under advisement.

Felix Frankfurter:

They filed a corrected opinion on the September 2nd, 1960.

Petition for rehearing in which these matters were urged was filed and there’s an opinion that rather unusual thing, certainly for this Court as I — as I see its manifestation, a month later there is an opinion on rehearing in which from your point of view, the Court is absolutely fairer, is that right?

Charles S. Rhyne:

My experience sir — if Your Honor please that a very few courts change — petitions for rehearing and I would say that the Court was.

It repeated the error that it made before and — and that I don’t think that makes it any more corrected than it was the first time.

Felix Frankfurter:

Well, I — I didn’t suggest that.

It just gives me thought in saying, the Court was all wrong and counsel is right.

Charles S. Rhyne:

Well, I would say this —

Felix Frankfurter:

If I — I should think, you would think that a natural trouble, wouldn’t you?

Charles S. Rhyne:

I would — I would say so.

But I — I do think that here, that the court below completely misconceived the incidence of this tax in saying it was on delivery instead of on sale and this Court had, many time, upheld taxes on sales measured by the gross receipt there from and I think that that’s a fundamental error that the court below didn’t face up to at all and in doing so, it ignored the — the many cases in this Court but —

John M. Harlan II:

Is this essence of your — is this the essence of your argument, as I understand it that Section 19 stands totally and wholly independently from the tax statute that’s involved here?

Charles S. Rhyne:

Yes, I’m —

John M. Harlan II:

And that the trouble with the dis — the trouble the lower court was that it lifted over so to speak what it found in language that it found in Section 19 and gave that as the characteristics of the taxing statute, I guess and that in determine the instance of the tax, we’re not bound.

We might be in other cases to characterizing the instance with this tax for ourselves to see whether there’s a federal relation?

Is that the essence of your argument?

Charles S. Rhyne:

That’s the essence of our argument in that — that is our position and of course we also take the position that where there’s no discrimination against or burden on interstate commerce or competitive advantage to interstate commerce that this Court has held that interstate commerce must pay its fair share of the conduct, the state and the local government and here were you have the separate instance, the sale taking place Mobile, the billing and all of these things that Mr. Beggs referred to, that if the City of Mobile does have the power, without conflict to the Constitution to impose this type of tax.

Felix Frankfurter:

But Mr. — did Mr. Beggs argue this case in the Court of Appeals?

Charles S. Rhyne:

Yes sir.

Felix Frankfurter:

I — I — I should assume in the matter of course that from your point of view you pressed the McGoldrick case hard on the Court?

Charles S. Rhyne:

Yes, —

Felix Frankfurter:

It isn’t even referred to as you read his opinion, is it?

Charles S. Rhyne:

No sir, he went off from the transportation case —

Felix Frankfurter:

As I — I understand —

Charles S. Rhyne:

(Voice Overlap)

Felix Frankfurter:

All I am saying is that this is the very far reaching error of this, if error it was.

Charles S. Rhyne:

I agree.

Felix Frankfurter:

Because that case isn’t even mentioned.

Charles S. Rhyne:

That’s true, that’s true.

He considered Spector and Calvert cases where there were taxes imposed on the flow or stream of commerce as distinguished from the sale at end of the line.

So —

Hugo L. Black:

Was there any suggestion in the court below that there’s quite interpretation of the state tax that you referred to the state court?

Charles S. Rhyne:

None that I know of this — it was not in person.

I think it that — that the interpretation of the Circuit Court of Appeals, certainly not binding on this Court.

You can look at page — the old — overall of this ordinance and see just exactly what is tax and what effect, if any, it has on interstate commerce.

It’s kind of a practical judgment in these cases.

I think Mr. Justice Clark pointed out there more than 300 and so decisions of this Court relating to this particular type of problem and always the Court has not looked at the label, the label.

The word “license” I think implied regulation or something and scared the court below.

William J. Brennan, Jr.:

Well, Mr. Rhyne is — is the — of course we’ve always said that we can go behind the label of franchise type license or anything else.

Isn’t this problem when the court below says what the statute means is that the incidence is deliveries and not sales, is that in the label?

Charles S. Rhyne:

I would that it’s not and I think that we’re on the very face of the language of the ordinance it says it’s on sales that obviously the court below is wrong.

Now, they — they reached out and tried to use some other parts of the ordinance.

It didn’t relate to this —

William J. Brennan, Jr.:

Well —

Charles S. Rhyne:

— particular tax.

William J. Brennan, Jr.:

— that’s to say that was merely a label — my difficulty is that when they read the ordinance as saying it is on delivery —

Charles S. Rhyne:

Yes.

William J. Brennan, Jr.:

Not on sale, is that the label to what was done.

Charles S. Rhyne:

Well, I say they were I can’t confuse by the fact that the ordinance is entitled by licensed ordinance and within that ordinance, you have all of these different types of taxes that are imposed.

Felix Frankfurter:

Now, suppose — suppose Judge Rives was right and suppose Section 19 which he sets forth on page 113 and 114 or the governing section and he’s commentary on it in that 401, 66.

Suppose, he was right and I would ask you the right — well understand, you could say within your case.

But you would have a very different case wouldn’t you or wouldn’t you?

Charles S. Rhyne:

I think we would have except I think that the — the effect on interstate commerce Mr. Justice Frankfurter is so very minimal and there is no competitive disadvantage to it.

No discrimination against it so that even so, I don’t think that the court below faced up to the line of decisions to this Court that said that, “Even though it was imposed on interstate commerce, if all these things don’t exist, the tax is valid.”

Felix Frankfurter:

Well don’t you — you don’t carry me along if they invoke the principle that there’s no discrimination against that — that local commerce is on an equal footing because I must repeat at — at the heart of it issue, problem commerce clause is that interstate commerce has a right of free and free no matter what the consequences are.

Charles S. Rhyne:

We’re not contesting that in the sightless and I’ll say our position if you well know is taxes on the sale and stuff.

Felix Frankfurter:

I understand.

Hugo L. Black:

Have United been denied any license or order that they couldn’t supply with pre-requisites —

Charles S. Rhyne:

No.

Hugo L. Black:

— in the consent of —

Charles S. Rhyne:

No, all of these imaginary things so the court below have never a arisen —

Hugo L. Black:

What is the gentleman representing — who made your first argument?

Charles S. Rhyne:

Have Mr. Beggs — he represents United and I represent the city, but they haven’t been denied any —

Earl Warren:

Mr. White.

James Lawrence White:

Mr. Chief Justice, may it please the Court.

I think I can come to grips immediately with the problem that appears to bother the court and state — I can state unequivocally and possibly understandably that we contend the court was exactly right in its analysis of this ordinance.

I submit to Your Honors that it is quite evident from the reading of the ordinance itself and that — that it is broader than one that imposes a tax based on the sales measured by gross receipts which from hearing the argument from my opponents this morning and browsing their briefs, I take to be their fundamental argument.

I submit that if you turn to the ordinance, which begins at 80 — page 83 of this record, it is an outright requirement that one must satisfy the condition set forth therein to conduct a business of any nature it said so on page 83 under a sub-Arabic 2 and they say that — reading the introduction first, we’re paraphrasing, “The following is hereby declared to be the schedule of licenses for the year beginning January 1, 1955 and so on, then it says, for keeping, engaging and/or carrying on a business of any nature offering merchandize for sale, soliciting orders or making deliveries of any merchandise and so on.

Now, it seems to me that it is quite evident from this that we submit to the Court that it is the purpose of this ordinance to have it apply to every person whatever located, if he’s engaged in or doing any of the acts there specified.

Now, appellant would have us adhere or attend only to Section 193 of that ordinance which appears after omissions on page 84 of the record.

There true enough, they deal with gas companies, but in dealing with gas companies, they deal with them for the purpose of setting forth what the exaction well be from it — from gas companies.

I do not think that it can be reasonably contended that all that goes before this exaction provision or the measurement on the gross receipts is a nullity and doesn’t mean anything.

Hugo L. Black:

May I ask you if the City of Mobile had attempted to make any of the gas companies delivering gas in the Mobile like United, get a license as a prerequisite to doing the interstate business?

James Lawrence White:

Mr. Justice Black, insofar as I know there’s been no compulsion in the sense that processes had been issued or anything else.

Insofar —

Hugo L. Black:

Was there any effort or do you know?

Are you familiar with Alabama law?

James Lawrence White:

I am not familiar with Alabama law and all of its detail sir.

So far as the context to these cases are concerned, United who is the one who paid the taxes, see, we’re here in the reimbursement situation for the tax paid as Mr. Beggs pointed out, the gas company is trying up over tax on the gas company.

It was voluntarily paid by United Gas Pipeline and I am sure that there’s no quarrel that that is the fact and consequently, we find ourselves in the posture of in effect saying, “United you did the wrong thing.

You paid something you did not have to pay.”

Hugo L. Black:

Well, I suppose, wouldn’t we, we would have that question before us not in theory but in fact that Mobile had tried to do that?

James Lawrence White:

I think that you have that in fact why — this case — you could make short trip to this case about any question at all Mr. Justice Black.

But when you come to the remedies, now it contained in the ordinance of self it first.

It is quite evident that they’re serious about this as license tax.

The — I think that I should point out that this ordinance and the thrust is to the business of any nature and it includes making deliveries and that the — a coverage of the ordinance is all inclusive that it doesn’t single out any local incident really when you come down to it, when you talk about the coverage of it, because there it pertains to any business.

Now, if only sales are singled out, if the — if the appellant is correct that what they tax is the sale, we submit that doesn’t make any difference.

That a tax on the sale really can’t be differentiated from a direct and apportioned tax on gross receipts which this Court I think has rather uniformly disallowed.

John M. Harlan II:

Do you think Section 16 has got nothing to do with your argument which in the ordinance?

James Lawrence White:

Well, I think it does —

John M. Harlan II:

Or it provides that no provision of this clause should be applied (a) so as to impose any unlawful tax or unlawful burden on the interstate commerce and so forth?

James Lawrence White:

Yes.

Mr. Justice Harlan and I think that has particular applicability to a question that I hope to reach and I think the Court is concerned in and this is a jurisdiction on appeal (Voice Overlap) —

John M. Harlan II:

(Voice Overlap) I was thinking it would have a bearing on the construction of the statute.

James Lawrence White:

And — and Justice Rives so treated it sir — Judge Rives in the court below so treated it as having an important bearing on it.

Felix Frankfurter:

Well, how does Section 16 help us to determine this by itself what is or what is not in any unlawful tax on interstate commerce?

James Lawrence White:

Well, it is — it is a self-executing completion Justice.

Felix Frankfurter:

Well it doesn’t — it doesn’t — it helped us to ascertain when it is and when it isn’t.

James Lawrence White:

But it —

Felix Frankfurter:

If it is then it — and it’s not included.

James Lawrence White:

That is correct.

Felix Frankfurter:

But the whole question is, is it or isn’t?

James Lawrence White:

Well let me go by — oh excuse me sir.

Earl Warren:

We’ll recess now.

— your arguments.

James Lawrence White:

Mr. Chief Justice, may it please the Court.

At the time of the launch and recess, my attention had been directed to Section 16 of the ordinance and perhaps I didn’t get import of Justice Harlan’s question and possibly then I didn’t follow the logical change to that of Mr. Justice Frankfurter.

I will make this observation in that Section 16 that it seems to that it neither adds to nor detracts from the ordinance that if — it were otherwise in conflict with the Constitution of the United States and presumably of the constitution of Alabama where then you would have it invalid and it doesn’t matter whether they so provide or not.

Justice Harlan, I don’t know if that has answered your question or not.

John M. Harlan II:

(Inaudible), I thought that you were (Inaudible) the statute as a whole or (Inaudible)

James Lawrence White:

Oh yes, I see.

John M. Harlan II:

(Inaudible)

James Lawrence White:

Now, treating a further with the statute as a whole, I say that this is a licensing ordinance because not only does it so state and requires outright in so many words, a license to conduct any business of any nature and you need to make deliveries and to enter the city to do business.

I think that this concept of a license being involved here is further strengthened by the fact that the tax must be paid before engaging in business as I see it under Section 18 of the ordinance which appears on page — record page 85.

It provides rather impressive criminal penalties of a $100 fine and six months imprisonment.

William J. Brennan, Jr.:

(Inaudible)

James Lawrence White:

Yes, Mr. Justice, I guess I have the wrong page reference to Section 18.

Yes, it begins on the — at the — 17.

Earl Warren:

(Voice Overlap) it isn’t in the record.

James Lawrence White:

Oh, 15, I am sorry.

Earl Warren:

15.

James Lawrence White:

It is Section 15.

William J. Brennan, Jr.:

(Inaudible)?

James Lawrence White:

Yes.

Well — oh no, I’m sorry sir it is Section 19 and Section 20 containing the criminal sanctions and they appear on page 86.

I’m sorry Mr. Justice Brennan, thank you.

There is a provision for a lien on the property of the offending or non-complying business and that I believe is — yes it is set forth in Section 21 of the ordinance on page 86 and as was mentioned by one of the counsel for the appellant who preceded me, there are provisions for injunctive relief under the organic law of the State which provides for — or is the enabling legislation for a city to enact an ordinance of this type.

Now, this license I think also could be construed as being only an annual license or in other words, it is required each year the ordinance so states in its very introductory sentence on page 83 of the record.

And Section 1 states that the following is here I declare to be and it’s adopted — it’s a schedule licenses for the year beginning January 1, 1955 and for each subsequent year, the license is payable, is due on January 1 of each year and that is set forth in Section 3 of the ordinance which appears on page 84 of the record and in the case of the new business even coming into the town as set forth in Section 15 there’s a sort of temporary method of making them pay for the license.

Now —

Felix Frankfurter:

Before you move on —

Earl Warren:

Is it your understanding this license of the — that the pipeline company is required to pay the license before it starts to operate in the —

James Lawrence White:

If it had not operated previously, Mr. Chief Justice, that would be the case and for it to continue to operate the thrust of the license — the ordinance is such that it must pay it.

Felix Frankfurter:

May I ask if since you evidently — inadvertently referred to the Section 15, before you directed me, I looked at it and that it has the comprehensive description of whether amount of the license is making the trend or so on and so on or amount of sales, this ordinance except where otherwise specified.

Now that deals with amount of — where the amount of a license is made to depend on the amount of sales.

This ordinance except where otherwise specified.

What I want to know is whether the amount whether there is anything otherwise specified?

James Lawrence White:

I can answer as to gas companies, there’s no other thing specified otherwise specified as to whether the ordinance in all of its at least more than 193 sub-provisions as to separate businesses so specified Mr. Justice Frankfurter, I cannot say.

Felix Frankfurter:

Then I — perhaps I would ask Mr. Beggs when he gets on his feet again, I assume he will.

In the petition for rehearing, I notice that the first provision said that, there’s no other thing important on a proposition where this petition is granted only the unrelated question of whether the tax had to be paid before United States — before United could exercise the privilege of selling its gas has been considered or argued.

Evidently, that was argued in the —

James Lawrence White:

Well I think it was argued, Mr. Justice Frankfurter.

Felix Frankfurter:

Was there any — were you in the argument?

James Lawrence White:

No, I was not sir.

Felix Frankfurter:

Well I’ll ask him —

John M. Harlan II:

Section 193, standing by itself (Inaudible)?

James Lawrence White:

If we have a standing by itself, Mr. Justice Harlan, my position would be the same that even as construed by appellant that this is not a gross receipts tax, but it is a license tax on sales measured by gross receipts.

I think that whenever you equate it on that basis, you immediately run into the situation or the concept that the tax on the sale cannot be differentiated from directly un-apportioned tax on gross receipts.

And on the basis of the Panhandle Indiana case under the Natural Gas Act true enough, it certainly seems clear that in the situation like this, interstate commerce is still continuing at the point which they seek to reach through this — this license tax.

Now, if —

Hugo L. Black:

(Voice Overlap) may I ask you how you can rely on the provision which says that the tax must be paid as a prerequisite for doing business at the same time rely on 193 which allows the company to do business a whole year in order to determine how much to pay the next year.

James Lawrence White:

Well that is — as I understand it Mr. Justice Black, that is the situation of what is owed by a company that has have the past experience that they can assess the license tax for the current year on the basis of what they have done the previous year.

Hugo L. Black:

But suppose it’s started the first of this year, then it never been done business there, what —

James Lawrence White:

Then, as I understand that they have a two months period during which a —

Hugo L. Black:

Where is that?

James Lawrence White:

To pick up the — I believe that is Section 15 of the ordinance on page 84 and 85 Mr. Justice Black.

Hugo L. Black:

Section what, 15?

James Lawrence White:

15.

That’s 84 and 85 begins at the bottom of its folio 122.

I think that that to provides for the situation where you have a new company coming into the City of Mobile, and then in fact saying that before engaging in or doing the business, a person, firm or corporation so liable or applying for a license shall pay the minimum amount prescribed.

Hugo L. Black:

What is the minimum for a gas company?

James Lawrence White:

That sir, I do not know off hand.

Hugo L. Black:

Not in their business, not in their —

James Lawrence White:

I do not believe that there is a specified minimum not to my recollection.

Hugo L. Black:

No way to access there — their (Inaudible) except to find out what business they did in preceding years (Voice Overlap)

James Lawrence White:

That — That made through an omission be the case sir.

Hugo L. Black:

Through what?

James Lawrence White:

I say that may through an omission be the case.

Hugo L. Black:

Why was it an omission?

James Lawrence White:

Well, I can’t say.

I’m not in position to answer the —

Hugo L. Black:

(Voice Overlap) the law which prescribes that company that’s going to do business to gas company for a year and the next year, it’s based on the gross tax, which certainly is not consistent with saying that the law at the same time means that they got to pay the tax as a prerequisite for doing business.

James Lawrence White:

I think that certainly in that event Mr. Justice Black, they would have to pay it the next year to continue doing the business and it would be every business much a license for that purpose sir.

(Inaudible) too much.

James Lawrence White:

Well, that — that is where you gain the minimum experience to pay the minimum.

Mr. Justice Black sir had asked me what was the minimum regard to it natural gas company or a gas company here and I was not in position to answer on that because I didn’t —

Hugo L. Black:

Because there’s any?

James Lawrence White:

Pardon sir?

Hugo L. Black:

Because there was any on the taxes, isn’t it?

James Lawrence White:

I do not see it here and I candidly so state.

Tom C. Clark:

I was wondering in that event because (Inaudible) two months period and multiply that with six and have to pay on that.

James Lawrence White:

That is — that is the way the general idea of Section 15 Justice Black.

Earl Warren:

Are there minimum license fees for other kinds of business in gas companies in this — in this ordinance?

Hugo L. Black:

Other merchants, I think, (Voice Overlap) doctors.

James Lawrence White:

Yes.

And I think that in dealing in services, there are —

William J. Brennan, Jr.:

(Inaudible)

James Lawrence White:

Yes, that’s right.

William J. Brennan, Jr.:

(Inaudible)

James Lawrence White:

I did not have the advantage of this pamphlet until afternoon recess Justice Brennan.

Mr. Rhyne was kind enough to give it to me.

Earl Warren:

Well, this would be an exception then to the other Sections of the ordinance which do fix minimums for other kinds of businesses?

James Lawrence White:

It — it may be Mr. Chief Justice.

Earl Warren:

Are there any other businesses for which there is no minimum?

James Lawrence White:

Mr. Chief Justice, I cannot answer that question.

Earl Warren:

I see.

James Lawrence White:

As I say, I did not have the ordinance until — during the luncheon recess.

John M. Harlan II:

(Inaudible)

Hugo L. Black:

The effects on railroad (Inaudible)

James Lawrence White:

Yes.

On page 48, they specify each railroad company having an office in the city shall pay $2,000.

Hugo L. Black:

How much?

James Lawrence White:

$2,000.

Felix Frankfurter:

Is this gas the only one that has no fixed amount?

I should just suppose if the basis — Section 15 certainly contemplate getting money on the basis of gross sales, doesn’t it?

James Lawrence White:

That is correct, sir.

Felix Frankfurter:

What I want to know is if any other business called upon required to — or exacting from other business in which the exacting is to be ascertained from the value, from either the amount of the capital invested or the value of the goods or the amount of sales?

James Lawrence White:

You mean it’s — you are still referring to gas companies, Mr. Justice Frankfurter?

Felix Frankfurter:

Oh, I’m not referring to the gas companies.

Section 15 is a scheme for ascertaining the amounts payable.

James Lawrence White:

That is correct Your Honor.

Felix Frankfurter:

Where the amount is fixed for a form broker —

James Lawrence White:

That’s correct sir.

Felix Frankfurter:

— or plumber or whatnot and it’s just a question of how many dollars.

James Lawrence White:

That is correct sir.

Felix Frankfurter:

But Section 15 contemplates exactions from commercial enterprises in which the exaction is not fixed but it’s an ascertainable amount dependent on capital invested, value of goods, or amount of sales.

Now, what I want to know is whether any other businesses from which exactions have to be made would come within this ordinance in other words in any other type of business would come within this ordinance and the — basis of ascertaining the amount is — turns on — it is the function of the capital invested or the value of the goods or the amount of sale, is there any other commercial enterprise within the scope other the gas companies?

James Lawrence White:

On the amount of the sales sir, I’m advised —

Felix Frankfurter:

On the amount of the sales or the amount of capital invested or the value of the goods?

James Lawrence White:

Electric — I’m advised the electric companies come under that category, sir.

John M. Harlan II:

(Inaudible), 20,000, 50,000, 100,000 (Inaudible)

Felix Frankfurter:

It’s true of every one of these businesses.

A new business has the basis on which you can calculate.

James Lawrence White:

Not at least for the first year sir.

Felix Frankfurter:

Right.

Hugo L. Black:

But (Voice Overlap) provides a minimum amount.

James Lawrence White:

It does.

It provides minimum amount but I mean does not –-

Felix Frankfurter:

But my point is — but if it says the amount of the sales, it can’t have a minimum amount unless it says in default of having any prior sales, it shall be X dollars.

James Lawrence White:

That can certainly appear so sir.

Felix Frankfurter:

Okay.

Is there such a provision?

James Lawrence White:

Not to my knowledge, sir.

Earl Warren:

But Mr. White I’m — I’m just wondering if Section 19 and Section 20 would apply to a gas company if there is no minimum for them to pay and no license required before they — they start doing business because Section 19 says that any person, firm or association or corporation who shall engage in any business trade profession or keep any establishment or do any business or any act with which a license is required by the foregoing ordinance without having first obtain such license shall upon conviction and so forth.

James Lawrence White:

Yes, Mr. Chief Justice.

Earl Warren:

Now as I understand it, this Section 193 on the gas companies does not require them to — to pay any license fee or any — any minimum license tax when they commence doing — doing business, but there is another section, Section 15 which provides for tax penalties of up to 25% in the event they don’t — they don’t pay the tax and I wondered if the city is — is limited to — to those penalties that are provided for in Section 15 rather than these — these criminal sections which you have pointed out to us.

James Lawrence White:

Mr. Chief Justice, as I construe Section 19, I think that that would apply.

In the — a case of a gas company in the City of Mobile, it was already there which in any year just did not procure its license and pay its license fee.

And let’s assume the situation which presumably would be the situation in regard to United Gas Pipeline, the appellant here.

It has been in Mobile — have been doing business in Mobile for a number of years.

It has the basis on which you could determine what it owed the city for the license.

James Lawrence White:

If it beginning for example in the year 1962, just decided it was not going to pay then I would say it would be in the situation of doing the business without having first to obtained the license and would be subject to the license as it is contemplated.

Earl Warren:

Well, let’s take the — we got to start some place.

James Lawrence White:

Yes sir.

Earl Warren:

So let’s start the first — first year.

Now, let’s have a gas company and a grocery store.

If a grocery store started to do business, it would have to have a license the very first day it opened, would it not?

James Lawrence White:

That appears so sir.

Earl Warren:

And if anyone did open a grocery store without — without paying the minimum, whatever it might be, would have to go to jail under this ordinance.

James Lawrence White:

That is right.

Earl Warren:

But a gas company, as far as we can see from these sections, could start in and could do business for an entire year and it would not be subject to these penal statutes, wouldn’t they?

James Lawrence White:

On the basis of what we know sir, it could — it could get by free for a year.

Yes.

Earl Warren:

Free for a year.

What I just —

James Lawrence White:

That is —

Hugo L. Black:

Let me ask you one other question.

A few weeks ago, this Court had a case, as I recall it from Connecticut, maybe weeks or months, in which there was no indication that the statute in that State has ever been enforced.

You have here statute which you say might bar United which comes here and said that it’s not — it’s got no object to pay any tax, it might bar them from doing an interstate business.

Have you any idea or do you have any information of any sorts of any kind that Mobile either has in the past or has threatened to enforce in a such statute against the person engaged in interstate commerce as a condition of such doing business?

James Lawrence White:

I have known not such knowledge.

Hugo L. Black:

The city attorney has signed a brief here which indicates there’s no such law in effect.

What have you to say with reference to his statement of that then?

James Lawrence White:

Well, I don’t understand that he has conceded that there’s a law in effect Mr. Justice Black.

As I get it, they have said that they would withhold their hand in seeking injunctive relief which comes under the Alabama organic law or enabling legislation, but I do not understand the amicus or the City of Mobile to have said that there is no such law that would permit the enforcement.

Now, I say to you sir that I know of no threat or of any instance of using the strong arm of the law of the injunction or the criminal penalties.

Hugo L. Black:

But, if we’re passing on the constitutionality of the cities (Voice Overlap)

James Lawrence White:

That is correct, sir.

Hugo L. Black:

— State law, the effectiveness of State law.

James Lawrence White:

That is correct, sir.

Hugo L. Black:

And I assume that all we track it down on the well-recognized rules, we should be pretty sure what we‘re doing.

James Lawrence White:

Well, I think sir that you can be sure on what you’re doing when you have something that is so obviously intended to be a license and that whether or not, its enforcement has been threatened.

Perhaps, there’s been no need to threaten enforcement because the tax has been paid.

That’s certainly true on the instances before us here.

Whether it is going to be dependent upon, whether they will or whether they’re not, whenever they presume to have the power to do so, I think the fact that they have provided themselves with the power, presume to have the power to do so, there you have a threat to interstate commerce which the Commerce Clause reaches.

Felix Frankfurter:

Mr. White, there are all sorts of things one kind as one goes through this booklet merchants item 259, merchants, wholesale, those run the amount, the annual amount runs from $50 to $200 and to fractions of a percentage, but they all are hooked to the gross annual business and it runs from a gross annual business of $25,000 to $2 million.

No fixed amount of a license as in another instances, $1000 or $50 net but, a ratio of the gross annual business and if a business starts, a wholesale business may present this same kind of a problem.

If the business starts and new, there is no gross annual business determinable the day it opened, the year it opened.

James Lawrence White:

That’s correct sir.

Felix Frankfurter:

So you’re exacting the same situation as the natural gas companies.

James Lawrence White:

Well, I think that the point was made that this does not discriminate against interstate commerce.

But I again say that the fact that there is no discrimination is in itself determinant of the fact that the — I think that again, and I believe was in Freeman versus (Inaudible) this Court observed that it’s immaterial that local commerce is subjected to a similar encumbrance and I think in the corollary there would be true that the mere fact that they are treated alike does not give the city the right to encumber interstate commerce.

I would –-

Earl Warren:

May I ask just one more question and I’ll try not to bother you.

James Lawrence White:

Quite alright, Mr. Chief Justice.

Earl Warren:

Suppose the gas company instead of distributing its gas to the householders and to the retail merchants and so forth in the city, instead of doing that through an agent as it does now which is paying the tax undertook to make the distribution to those consumers in exactly the way it does with these two large ones and it collected the charges itself, would you say that all of its business would be exempt from this tax on the grounds that it’s interstate commerce or can you make a distinction between these large ones and the small ones?

James Lawrence White:

I think that quantitatively you can.

Earl Warren:

Quantitatively?

James Lawrence White:

Yes.

It is that — well, where you have the lar — movement of very much larger volumes of gas than you have in the instances of where you serve domestic costumers, you have the situation of a further and further division of the gas into smaller and smaller packages so that it can be distributed to more and more people that you then get into a situation of where you are occupying streets of a city up to a much greater extent.

You get into a situation of where perhaps the — there’s a greater regulation.

I recognize that perhaps the mechanical test of breaking the package may no longer be of a particular significance, but yet, you have a repeated breaking down of the commodity into smaller and smaller quantities.

Here, we have the situation of where the only function of the local distribution company is to serve as a conduit for these large interstate pipelines gas which goes in large volumes to the seven customers.

I think that it all gets to be perhaps Mr. Chief Justice, a matter of degree.

Earl Warren:

Question of degree or whatever.

James Lawrence White:

And — but when you come to the small householder who may use a very, very, very small fraction of the amount in the whole year that a large industry may use in a few hours, I think you have, as I said, recently, a quantitative situation which I think would have an effect on this interstate commerce concept.

Now, aside from this privilege tax concept, it seems to me, if the Court please, that as I pointed out in discussing this ordinance generally, this ordinance, the thrust of it while it may say at is to the sales to be measured by gross proceeds that — to say that that makes a difference, is a difference without any distinction whatsoever.

Because, if they do in fact reach the gross proceeds, if this then I think becomes a direct tax, we don’t have here a situation of where they’re trying to reach net income, we don’t have the situation wherein the city is trying to make an apportionment so as to make this tax commensurate with the local — the relative local activity that is involved, I submit Your Honors that we held —

Hugo L. Black:

Do you know these distinctions also apply so far as the sales to the individual consumers are concerned, which you just referred?

James Lawrence White:

Yes.

I would say that there in a maybe more abstracts since you have a continuation of interstate commerce, but it gets broken down into smaller and smaller package.

Hugo L. Black:

Right, it’s broken into smaller parts that it violates the Constitution.

Does that justify the city in violation of the Constitution?

James Lawrence White:

Well, Mr. Justice Black, I think that it would.

I think it does have an important bearing upon it because I don’t think that you can divorce interstate commerce in all instances from physics that you have problems in a very —

Hugo L. Black:

Why should the consumers, these small consumers have that, the burden of this if the others don’t?

James Lawrence White:

Well, Mr. Chief — Mr. Justice Black, I don’t know if they do.

Hugo L. Black:

So why — if it is the same — you’re basing it on the same movement, you say but you split it up into parts.

James Lawrence White:

Well now —

Hugo L. Black:

I have difficult time in drawing a distinction.

James Lawrence White:

Well, I’ll take it then when you asked me the question originally, you related it to this same pipeline company making the same delivery.

The actual fact is that in the City of Mobile, the gas which is sold by — it’s sold too to small domestic customer is sold by the local distributing company and the local distributing company —

Hugo L. Black:

Where does the movement of the wholesale company in?

What is the movement in of the gas?

James Lawrence White:

The movement by the wholesale company on the sale to the domestic —

Hugo L. Black:

The movement — what is the movement of the gas in?

James Lawrence White:

The movement of the gas in sir, when it is consumed.

When it is burned, when it is used for its inherent physical property (Voice Overlap)

Hugo L. Black:

So if you base it on movement alone, the situation is the same.

James Lawrence White:

It moves to clear to the burner tip in either event.

Hugo L. Black:

You base it on that alone?

James Lawrence White:

If it were dependent on that alone.

John M. Harlan II:

What — what different state decisions (Inaudible)

James Lawrence White:

There have been state decisions Mr. Justice Harlan on — as the state franchise tax which I frankly must state I don’t believe lends any light on this.

There are state franchise taxes and if — the state taxes it on an entirely different basis.

There was one case.

I do not have it at hand now.

I discarded it mainly because I thought it had really no relationship to this which involved Transcontinental Gas Pipeline Company and another which involved a transportation by a — or products, oil products transported and my recollection is that in both instances, the State struck down the franchise tax because interstate commerce was involved.

But it was not a situation — it was a franchise tax, straight out franchise tax.

I have averted to the fact that I think that we cannot say that there — that this is not also a gross receipts tax and accordingly, it would be defective for that reason.

The Court had reserved the question of jurisdiction in this case until argument on the merits and we have, if Your Honors please, indicated two possible jurisdictional deficiencies in this case so far as the appeal is concerned.

James Lawrence White:

One is, that whether the appeal — appeal has been out of time because of the history of this case below where we had two petitions for rehearing and whether — and we submit that on the question of timeliness of the appeal, it is simply dependent upon what the Court below did the second time because if the Court did enter a judgment at that time or an order which would be the beginning of the juris — running of a jurisdictional time admittedly they are on time otherwise, they would be out of time.

The other question on jurisdiction —

Felix Frankfurter:

May — may I break in there?

James Lawrence White:

Yes, certainly sir.

Felix Frankfurter:

There is an opinion on rehearing.

Mr. Beggs filed his petition for rehearing September 23rd, 1960 —

James Lawrence White:

Yes sir.

Felix Frankfurter:

Suppose the next day, the entry on the record, in the books of the Court of Appeals of the Fifth Circuit would have been the next day, September 24th assuming that is in a Sunday, suppose they just entered petition for rehearing denied and suppose we had no more than that Mr. White.

James Lawrence White:

They would have been out of time sir.

Felix Frankfurter:

That would have been out of time.

James Lawrence White:

Yes sir.

Felix Frankfurter:

Clearly?

James Lawrence White:

Clearly out of time by over a hundred days, I believe.

Felix Frankfurter:

Whatever it is so that — I have an opinion, I haven’t put my mind on it, but the question is, whether — what — what we find on pages 127 and 128 runs the time on you in that those two pages constitute the entry of a judgment, is that right?

James Lawrence White:

If they constitute such a change by the Court of its — either its original judgment and opinion or the timely petition for rehearing, I would say that they would apparently be in time.

If the Court, on the other hand, by the second opinion on rehearing did not alter its previous holdings and merely restated them, I suggest to the Court that the appeal has been filed out of time.

Felix Frankfurter:

(Voice Overlap) you correct me if I understood it improperly, I have to go beyond that and say that what appears on page 132, November 16, that’s the time running from November 16.

James Lawrence White:

That would be correct, sir.

Felix Frankfurter:

I take it that the mere (Inaudible) by the per curiam the second petition for rehearing is denied, although that’s all we have, clearly that would not start and had been running —

James Lawrence White:

That is my contention, sir.

John M. Harlan II:

Is the petition for the certiorari which is also filed, is that out of time?

James Lawrence White:

It was be more out of time —

John M. Harlan II:

More out of time.

James Lawrence White:

— by — the notice of appeal Mr. Justice Harlan was filed on January 25th, 1961 and the petition for certiorari was filed February 13, 1961 so it would be even more out of time.

The other point on —

Hugo L. Black:

Beginning at — beginning with what date, Mr. White?

James Lawrence White:

Well, it depends — it depends on what date we start from Mr. Justice Black.

Hugo L. Black:

Suppose you should begin from the last — last opinion of the Court on rehearing?

James Lawrence White:

No, my — I have begun from the denial of the Court –-

Hugo L. Black:

But (Voice Overlap) Court wants to disagree with you and think it when the Court takes up a matter for rehearing and writes its opinion on it, it begins in, when would it be out of time?

Hugo L. Black:

Would it be in time or out of time?

James Lawrence White:

It would be out of time if you consider the first order of the court below on rehearing, it would be in time if you consider the second order of the Court on rehearing.

Felix Frankfurter:

Do you have a — not you, but I would have a very hard time to attach different legal significance to what was written after the first — as between the first petition for rehearing and the second.

In other words, by that concern, I could make a legal distinction between the dispositions made on the first hearing and the disposition made after the second.

James Lawrence White:

And neither can I, Justice Frankfurter and that’s why I raised the point.

Hugo L. Black:

But (Voice Overlap) you did not make a difference.

Felix Frankfurter:

(Voice Overlap)

Hugo L. Black:

But the Court takes jurisdiction of the motion for rehearing, considers it and writes an opinion on it, that here what you did, you say that that wouldn’t be the judgment which was appealable?

James Lawrence White:

I would say that that — it wouldn’t not be the judgment that for no other reason —

Hugo L. Black:

So that (Voice Overlap) on that.

James Lawrence White:

— invoking the policy that litigation must have (Voice Overlap)

Felix Frankfurter:

Because if I were you, I wouldn’t argue it, I would cite cases.

James Lawrence White:

Thank you sir, I have.

The other point on jurisdiction was whether the court below had actually declared this city ordinance upon which appellants were dependent to be repugnant to the Constitution.

Certainly, it drew it in the question.

There’s no question about that, and it determined as a part of its rationale that it would offend the Constitution of the United States, but the thing that — my concern the Court from the jurisdictional standpoint is that the Court then said this isn’t unconstitutional as a whole that the — I am going to use the savings clause of this to save it from unconstitutionality, therefore that so far as complying of those rigorous standards which are required in jurisdictional matters, the court below said this — the ordinance, as we construe it, is constitutional.

As I said before, it certainly drew into question to whether or not it was constitutional.

I think it brings into play perhaps a difference in the judicial code which started with the amendments of 1948 wherein dealing with the jurisdiction of this Court to hear an appeal from the Court of Appeals, one of the Federal Court of Appeals, it was necessary that the statute relied upon be declared to be repugnant to the Constitution treaties or law of the United States whereas previously it was only necessary as in cases of certiorari from the state court to draw it into question.

John M. Harlan II:

I’d like to put another question to you since you have been canvassing a lot of things, supposing one has left in doubt as to what the proper construction of this statute is notwithstanding Judge Rives’ opinion, but do you think that it would be appropriate to send you back to the state court to get interpretation on the statute.

James Lawrence White:

I inquired of my associates from Alabama as to whether such a procedure is available first and I’m advised that it is in some form.

I think that it is – if there were a genuine doubt as to where the state of the state law that that might well be appropriate.

I submit Mr. Justice Harlan —

John M. Harlan II:

I understand.

James Lawrence White:

— this ordinance means what it says.

William J. Brennan, Jr.:

(Inaudible) that neither a certiorari nor (Inaudible)

James Lawrence White:

That is correct, Mr. Justice Brennan.

Thank you sir.

Earl Warren:

Mr. Beggs?

E. Dixie Beggs:

Mr. Chief Justice, may it please the Court.

First, answering the quantitative distinction question that was asked upon which Mr. White undertook to make a distinction.

E. Dixie Beggs:

That question has been passed on by this Court itself in one of the early cases in Pennsylvania Gas Company versus Public Service Commission.

The Court held that the pipeline company that pipes the gas into the State and sold it to residences and factories within the State was subject to state regulation because the business was local in character.

In the subsequent case of Panhandle Eastern Pipeline Company, the pipeline company sought to exclude its large bulk sales to Anchor Hocking or very large industry on the theory that the Pennsylvania Gas case made local only the small sales, but this Court pointed out that the opinion in the Pennsylvania Gas case that requires it — does not require to be so limited.

On the contrary, emphasis may rather be placed on effect that both situations involved sales to ultimate consumers.

Anchor Hocking being just as clearly in that category is that factories and residences served in the — in the Pennsylvania Gas case.

Both involved gas sold to the ultimate consumers so that the quantitative test has already been before the Court and the test is, if the transaction is a sale to the ultimate consumer, it’s local in character and is subject to both the state — state power to regulate and the state power to tax.

Now, on the question of the —

Charles E. Whittaker:

Whether that to say then that an interstate carrier may not make a sale?

E. Dixie Beggs:

No, no.

Charles E. Whittaker:

— locally if he makes the sale?

E. Dixie Beggs:

The interstate carrier may sell his own commodity.

But when he sells this commodity, at the end of — at the end of interstate hall, he has become subject to local law.

Charles E. Whittaker:

It then became interstate commerce — interstate commerce all the way up to the consumers’ burners?

E. Dixie Beggs:

Yes sir.

Charles E. Whittaker:

And right at that point, it became local in character.

E. Dixie Beggs:

May I make this distinction Your Honor?

If United — if United was transporting the gas of ABC Gas Company for half, Spector Motor Company was holding free then the whole transaction would be interstate commerce.

The movement was a pick it up in Texas and then putting down in Alabama.

That part is free of any tax and we put in — there has been no effort tax at all but the Court of Appeal seems to think there has.

But what United Pipeline did was got owner to bring in the commodity but it owned the commodity and at the end of the journey it says, now having brought here, we’ve got the right to sell free of any tax.

So there’s the distinction but Spector Motor Service says, the carrier that picks up and puts down for hire, the commodity of the third party, sure its interstate commerce from picking up to the putting down but where the carrier owns the commodity and he tries to stretch the umbrella out over the sale at the end, he’s invaded the local field and it’s subject to local regulations.

Felix Frankfurter:

Mr. Beggs, may I ask you this, as I understand it, there were seven large commercial consumers, is that right?

E. Dixie Beggs:

Yes sir.

Felix Frankfurter:

Only two are before this Court?

E. Dixie Beggs:

Yes sir.

Felix Frankfurter:

Did the other five in the vernacular pulled up or is that — or that case pending.

E. Dixie Beggs:

They paid out Your Honor.

Felix Frankfurter:

Pardon me?

E. Dixie Beggs:

They paid out.

Felix Frankfurter:

There is no — that controversy is out —

E. Dixie Beggs:

It’s out, yes sir.

Felix Frankfurter:

In any event, I want to ask this question.

I understood you do agree that if this construction were placed upon the ordinance by the state court, this Court will be foreclosed from independent examination of it, is that right?

E. Dixie Beggs:

I believe you follow the state decision, yes sir.

Felix Frankfurter:

Yeah.

Now, was there at any time or even your petition for rehearing, I don’t mean to draw anything here unfavorable inferences and I just want to know this.

Was it ever suggested in view of the construction of the Court of Appeals gave that one had better find out what Alabama Supreme Court gives?

E. Dixie Beggs:

No sir, I’d like —

Felix Frankfurter:

Because — because it’s — I’ll tell you why there’s such (Inaudible).

Assume we reverse the Court of Appeals under construction of the statute as you will arrive again next year, wouldn’t it?

Is the ordinance still enforced?

E. Dixie Beggs:

Yes, sir.

Felix Frankfurter:

The Alabama Supreme Court wouldn’t be bound by it.

E. Dixie Beggs:

No sir.

Felix Frankfurter:

The Alabama Supreme Court makes next year may find, they conclude the Judge Rives is right in construing that ordinance.

E. Dixie Beggs:

May I make two answers?

I called the Court’s attention that the Alabama district judge and Alabama lawyer, Judge Rives also is an Alabama lawyer but Judge Thomas is there pressing in the Alabama law upheld the order.

Felix Frankfurter:

That’s right.

E. Dixie Beggs:

He construed it.

So if weight is to be given to a lower court construction, I don’t know which I have to agree with.

Felix Frankfurter:

I’m not giving — my question isn’t implied any weight either way.

E. Dixie Beggs:

Now, the second answering it another way, what has been overlooked so far by Mr. White hasn’t been called to the Court’s attention in this construction of the statute is the backing up state statute which authorizes city ordinance.

That is found in Appendix B on our main brief.

Felix Frankfurter:

But doesn’t tell me at least, maybe it tells it to others what the ordinance means?

E. Dixie Beggs:

It does make clear though Your Honor that the tax is limited to sales and it’s not on transportation and it’s also makes clear that the tax is only on the sales of the previous year and that — that state enabling act has been before the Alabama Supreme Court and the Alabama Supreme Court held that where an utility was purchased by a new purchaser, it cannot be taxed on the sales of the seller in the previous year.

Felix Frankfurter:

But —

E. Dixie Beggs:

But to remedy that, the legislation then added a cause that’s in here now but it wasn’t there at that time.

Felix Frankfurter:

But Mr. Beggs, It wouldn’t be the first ordinance that held by a state court to have exceeded the enabling act.

E. Dixie Beggs:

I agree that this precise point is not the best part.

I wanted to answer though the questions of why there is nothing in the city ordinance that taxes on current year sales or requires a minimum tax at the outset.

E. Dixie Beggs:

To have done either would have exceeded the enabling act to the state legislature.

That provision in Section 15 it says that you can have 60 days free and then pay based on current year sales hasn’t an application here.

The state statute says only sales of the previous year and the Supreme Court of Alabama has ruled that it means just that.

Felix Frankfurter:

Alright, that may mean that for the first year you go free.

E. Dixie Beggs:

Yes.

Right, that’s the effect of them.

That’s all we’ve argued in any of the Courts.

John M. Harlan II:

What is the economics of this? What’s the dollar amount of the taxes involved?

E. Dixie Beggs:

Last year that we paid in 1958 was something over a hundred thousand dollars on these two industries, alone I believe.

My figures are vague in my mind now Your Honor.

The total of the tax is about one-third of the Mobile — City of Mobile revenue but that involves the purchases from the local distributors.

Hugo L. Black:

Judge Thomas is a Mobile lawyer.

E. Dixie Beggs:

Yes sir and former state secretary.

William O. Douglas:

This is — this is rather curious from litigation.

I suppose that heart the only person here who’s really in favor is the amicus.

E. Dixie Beggs:

I’m sure their heart is any more than rest of us.

We paid out dollars and we feel we’re entitled for reimbursement and that must be fair with our other customers.

William O. Douglas:

Oh, I understand that (Voice Overlap).

E. Dixie Beggs:

Yes sir.

I would like also to point out that the State of Alabama Supreme Court has passed on similar state enactments and in Southern Natural Gas which came to this Court, the tax was upheld because there were sales direct to industries there.

In the other two appearances of similar tax cases before the Alabama Supreme Court, they held that interstate commerce was involved because the only sales was sales for resale to the local distributor.

But in Southern Natural Gas case, we had a — a factual situation quite comparable to this to where the sales where there are six to seven subsidiaries of the Tennessee Court of iron company and the state graduated franchise tax was upheld because that was found to be a local business.

And this Court said again upholding the tax which had been ties through upon by the Alabama Supreme Court said, “We had occasion in East Ohio Gas Company to consider the distinction between the transportation of gas into a state and the furnishing of gas so transported to consumers within the State.”

That is the distinction which makes this tax on the privilege of furnishing it to the consumer who buys at his burner tips, who pays for it and the city where he does the consuming.

He gets it under the streets of the city, under the police protection of the City.

That makes this the local event that is separable from commerce, the sale to the ultimate consumer.

The interstate transportation is over.

There’s been a transfer of possession, the transfer of title.

I see my time is up.