514 U.S. 175 (1995), 93-1677, Oklahoma Tax Comm'n v. Jefferson Lines, Inc.

Docket Nº:No. 93-1677
Citation:514 U.S. 175, 115 S.Ct. 1331, 131 L.Ed.2d 261, 63 U.S.L.W. 4233
Case Date:April 03, 1995
Court:United States Supreme Court

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514 U.S. 175 (1995)

115 S.Ct. 1331, 131 L.Ed.2d 261, 63 U.S.L.W. 4233




No. 93-1677

United States Supreme Court

April 3, 1995

Argued November 28, 1994



Respondent Jefferson Lines, Inc., a common carrier, did not collect or remit to Oklahoma the state sales tax on bus tickets sold in Oklahoma for interstate travel originating there, although it did so for tickets sold for intrastate travel. After Jefferson filed for bankruptcy, petitioner, Oklahoma Tax Commission, filed proof of claims for the uncollected taxes, but the Bankruptcy Court found that the tax was inconsistent with the Commerce Clause in that it imposed an undue burden on interstate commerce and presented a danger of multiple taxation. The District Court affirmed. The Court of Appeals also affirmed, holding that the tax was not fairly apportioned. Rejecting the Commission's position that a bus ticket sale is a wholly local transaction justifying a State's sales tax on the ticket's full value, the court reasoned that such a tax is indistinguishable from New York's unapportioned tax on an interstate bus line's gross receipts struck down by this Court in Central Greyhound Lines, Inc. v. Mealey, 334 U.S. 653.


Oklahoma's tax on the sale of transportation services is consistent with the Commerce Clause. Pp. 179-200.

(a) Under Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, Oklahoma's tax is valid if it is applied to an activity with a substantial nexus with the State, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the State. The activity here clearly has a nexus with Oklahoma, the State where the ticket is purchased and the service originates. Pp. 179-184.

(b) The purpose of the second prong of Complete Auto 's test is to ensure that each State taxes only its fair share of an interstate transaction. A properly apportioned tax must be both internally and externally consistent. Internal consistency looks to whether a tax's identical application by every State would place interstate commerce at a disadvantage as compared with intrastate commerce. There is no failure of such consistency in this case, for if every State were to impose a tax identical to Oklahoma's—i.e ., a tax on ticket sales within the State for travel originating there—no sale would be subject to more than one State's tax. External consistency, on the other hand, looks to the economic justification for the State's claim upon the value taxed, to discover

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whether the tax reaches beyond the portion of value that is fairly attributable to economic activity within the taxing State. Pp. 184-185.

(c) Where taxation of income from interstate business is in issue, apportionment disputes have often focused on slicing a taxable pie among several States in which the taxpayer's activities contributed to taxable income. When examining the taxation of a sale of goods, however, the sale is most readily viewed as a discrete event facilitated by the laws and amenities of the place of sale, and the transaction itself does not readily reveal the extent to which interstate activity affects the value on which a buyer is taxed. Thus, taxation of sales has been consistently approved without any division of the tax base among different States and has been found properly measurable by the gross charge for the purchase, regardless of any activity outside the taxing jurisdiction that might have preceded the sale or might occur in the future. Therefore, an internally consistent, conventional sales tax has long been held to be externally consistent as well. Pp. 186-188.

(d) A sale of services can ordinarily be treated as a local state event just as readily as a sale of tangible goods can be located solely within the State of delivery. Sales of services with performance wholly in the taxing State justify that State's taxation of the transaction's entire gross receipts in the hands of the seller. Even where interstate activity contributes to the value of the service performed, sales with performance in the taxing State justify that State's taxation of the seller's entire gross receipts. See, e.g ., Western Live Stock v. Bureau of Revenue, 303 U.S. 250. In this case, although the service is performed only partially within the taxing State, the buyer is no more subject to double taxation on the sale of services than the buyer of goods would be. The taxable event here comprises agreement, payment, and delivery of some of the services in the taxing State. No other State can claim to be the site of the same combination, and these combined events are commonly understood to suffice for a sale. Central Greyhound, supra, distinguished. Pp. 188-191.

(e) Jefferson offers no convincing reasons to reconsider whether this internally consistent tax on sales of services could fail the external consistency test for lack of further apportionment. It has raised no specter of successive taxation so closely related to the transaction as to indicate potential unfairness of Oklahoma's tax on the sale's full amount. Nor is the fact that Oklahoma could feasibly apportion its tax on the basis of mileage, as New York was required to do in Central Greyhound, supra, a sufficient reason to conclude that the tax exceeds Oklahoma's fair share. Pp. 191-196.

(f) The tax also meets the remaining two prongs of Complete Auto 's test. No argument has been made that Oklahoma discriminates against

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out-of-state enterprises, and there is no merit in the argument that the tax discriminates against interstate activity, American Trucking Assns., Inc. v. Scheiner, 483 U.S. 266, distinguished. The tax is also fairly related to the taxpayer's presence or activities in the State. It falls on a sale that takes place wholly inside Oklahoma and is measured by the value of the service purchased. Pp. 197-200.

15 F.3d 90, reversed and remanded.

Souter, J., delivered the opinion of the Court, in which Rehnquist, C. J., and Stevens, Kennedy, and Ginsburg, JJ., joined. Scalia, J., filed an opinion concurring in the judgment, in which Thomas, J., joined, post, p. 200. Breyer, J., filed a dissenting opinion, in which O'Connor, J., joined, post, p. 201.

Stanley P. Johnston argued the cause and filed a brief for petitioner.

Steven D. DeRuyter argued the cause for respondent. With him on the brief was Loren A. Unterseher.[*]

Justice Souter delivered the opinion of the Court.

This case raises the question whether Oklahoma's sales tax on the full price of a ticket for bus travel from Oklahoma to another State is consistent with the Commerce Clause, U.S. Const., Art. I, § 8, cl. 3. We hold that it is.


Oklahoma taxes sales in the State of certain goods and services, including transportation for hire. Okla. Stat., Tit. 68, § 1354(1)(C) (Supp. 1988).[1] The buyers of the taxable

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goods and services pay the taxes, which must be collected and remitted to the State by sellers. § 1361.

Respondent Jefferson Lines, Inc., is a Minnesota corporation that provided bus services as a common carrier in Oklahoma from 1988 to 1990. Jefferson did not collect or remit the sales taxes for tickets it had sold in Oklahoma for bus travel from Oklahoma to other States, although it did collect and remit the taxes for all tickets it had sold in Oklahoma for travel that originated and terminated within that State.

After Jefferson filed for bankruptcy protection on October 27, 1989, petitioner, Oklahoma Tax Commission, filed proof of claims in Bankruptcy Court for the uncollected taxes for tickets for interstate travel sold by Jefferson.[2] Jefferson cited the Commerce Clause in objecting to the claims, and argued that the tax imposes an undue burden on interstate commerce by permitting Oklahoma to collect a percentage of the full purchase price of all tickets for interstate bus travel, even though some of that value derives from bus travel through other States. The tax also presents the danger of multiple taxation, Jefferson claimed, because any other State through which a bus travels while providing the services sold in Oklahoma will be able to impose taxes of their own upon Jefferson or its passengers for use of the roads.

The Bankruptcy Court agreed with Jefferson, the District Court affirmed, and so did the United States Court of Appeals for the Eighth Circuit. In re Jefferson Lines, Inc., 15

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F.3d 90 (1994). The Court of Appeals held that Oklahoma's tax was not fairly apportioned, as required under the established test for the constitutionality of a state tax on interstate commerce. See Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977). The Court of Appeals understood its holding to be compelled by our decision in Central Greyhound Lines, Inc. v. Mealey, 334 U.S. 653 (1948), which held unconstitutional an unapportioned state tax on the gross receipts[3] of a company that sold tickets for interstate bus travel. The Court of Appeals rejected the Commission's position that the sale of a bus ticket is a wholly local transaction justifying a sales tax on the ticket's full value in the State where it is sold, reasoning that such a tax is indistinguishable from the unapportioned tax on gross receipts from interstate travel struck down in Central Greyhound. 15 F.3d, at 92-93. We granted certiorari, 512 U.S. 1204 (1994), and now reverse.


Despite the express grant to Congress of the power to "regulate Commerce . . . among the several States," U.S. Const., Art. I, § 8, cl. 3, we have consistently held this language to contain a further, negative command, known as the dormant...

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